Dollar Gains

I think that if I didn’t have bad luck, I would have no luck at all. Every time I travel internationally, the U.S. dollar depreciates against the currencies of the countries I will be visiting. At times, the cost of a light breakfast exceeds the daily meal allowance in our expense system.

I have an overseas trip coming up, but it looks like my fortunes may change. The U.S. dollar has been on quite a run this year, gaining ground against a broad range of its rivals. This development is easy to understand at one level, but surprising at another.

The American economy has been the best performer among major developed markets for well over a year. Growth continues to be fueled by consumers, who are enjoying sizeable real wage gains and appreciation of their investments. Government spending in the United States is escalating at a much faster pace than is the case in other nations, adding to aggregate demand.

Capital is also flowing into the U.S. Equity markets have gained, led by a technology sector which is leading innovation. And yields on Treasury securities remain very attractive, especially after increasing in the wake of revised expectations of Fed policy. Interest rate differentials between markets can be a catalyst for inbound investing, which requires trading into the U.S. dollar.

While beneficial to America (and its outbound business travelers), recent developments in the foreign exchange market have been problematic for a number of other countries. The prices of many essential commodities, including oil, are denominated in dollars; the strength of the dollar raises import costs abroad. Debt repayments on dollar-denominated borrowing have become more taxing for some emerging markets.