US dollar surge complicates other currencies

Investing

The US dollar continues to surge against other currencies globally as investors pack into the safe asset and concerns of a global recession intensify.
US dollars and coins in a tip jar
Money in a tip jar in a Taos, New Mexico, coffee shop includes a two dollar bill. | Photo by Robert Alexander/Getty Images

The moves are prompting a growing crop of experts to warn the dollar’s strength could spell further doom and gloom for the slumping stock market, as it has proven to do historically.

While the strong dollar may give Americans stronger purchasing power abroad, it’s bad news for the earnings of multinational firms and thus the stock market.

Morgan Stanley chief equity strategist Michael Wilson wrote in a Monday note that a 0.5% decrease in earnings for S&P 500 companies accompanied every 1% increase in the Dollar Index, writing, “The recent move in the US dollar creates an untenable situation for risk assets that historically has ended in a financial or economic crisis, or both.”

The dollar has similarly skyrocketed in prior economic downturns, jumping 22% in 2008 amid the Great Recession and 7% in early 2020 as the Covid-19 pandemic ground the global economy to a halt.

Even after crashing following Russia’s invasion of Ukraine in February, the ruble is one of the best-performing currencies against the dollar in 2022, gaining nearly 30% in value year-to-date. Many attribute the rouble’s recovery to the Russian government artificially propping up its value by implementing stringent capital controls as the country becomes increasingly isolated from the global economy.

This article was first published on forbes.com

Further Reading

Surging Dollar Is Bad News For Stocks—History Shows Markets Won’t Recover Until Greenback Falls (Forbes)

U.S. Dollar Hits 20-Year High: Here’s What That Means (Forbes)

Weakening Stock Market Worsened By Strong Dollar (Forbes)