Investing in the US Dollar

The US faced political and economic uncertainty in recent years. However, for those watching the currency market, the real story has been the continued strength of the US dollar. In this article, we discuss the reasons behind the dollar’s strength, what it means for the currency market, and how investors can take advantage of these developments. The Bloomberg Dollar Spot Index remains steady in 2023 so far, near its yearly high. One of the reasons behind the strength of the US economy is the significantly higher interest rates when compared to other developed countries. The Federal Reserve’s benchmark rate is at 5.25%, which is much higher than the interest rates in the Eurozone (3.25%), UK (4.50%) and Canada (4.50%), and Japan (0.10%).

What is driving up the value of dollars in the US?

The flourishing demand for shares in US technology companies is driving up the value of dollars, say Citigroup Inc. currency strategists. This is due to the perception that technology stocks are the primary beneficiaries of the budding boom in the artificial intelligence sector, causing a significant boost in the Nasdaq 100 Index of tech stocks, which has surged 33% this year. The US economy has been boosted by the Inflation Reduction Act of 2022, leading to massive capital investment and construction spending by manufacturers has more than doubled in the past year. Recent Treasury auctions have seen significant demand from buyers, despite fears of a financial crisis.

The Dollar’s Global Dominance

Despite attempts to move away from the dollar, the use of the dollar in global transactions has grown since Russia invaded Ukraine in February 2022. Non-US investors own $7.57 trillion of Treasuries as of March, which should make it easier for the market to absorb the deluge of Treasuries coming, as the US government is now able to rebuild its cash accounts. The US bond market has delivered superior returns of 2.17% this year, compared to the 1.63% for the global debt market overall.

Currency Trading Insights

The MSCI USA Index gained 11.8% this year, compared to 6.20% in the MSCI All-Country World Index. The price-to-earnings ratio for the MSCI USA index is 19.4, showing that investors value US shares more highly than non-US shares. Investors are bullish on the US economy, with technology, construction, and bonds driving a robust dollar. They’re focused on American exceptionalism, not the idea of decline. Consider leveraging these positive developments for currency trading.

As of today, the exchange rate for US Dollars (USD) to British Pounds (GBP) is 1 USD to 0.7198 GBP. However, exchange rates are subject to change constantly, so it’s best to check with your preferred currency exchange provider for the most up-to-date rate.