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The strong dollar casts a long shadow

Jim Solloway, SEI Chief Market Strategist and Senior Portfolio Manager, and Kathy Oldfield, Director of Client Portfolio Management, discuss the economic outlook for the coming months.

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- Hi, I'm Kathy Oldfield, Client Portfolio Manager at SEI. Today I'm here with Chief Market Strategist and Senior Portfolio Manager Jim Solloway to provide a quick preview of one of the timely topics he covers in our most recent Economic Outlook. Jim, the strength of the U.S. dollar has been a big story this year. What effect is it having on the economy, both overseas and at home?

- Thanks, Kathy. The good news for our trading partners is that the goods they produce are more affordable for Americans to purchase. And if you've always wanted to go to Europe, now is the time to take that trip

- And the bad news?

- Well, the reverse is also true. A strong dollar worsens the inflationary pressures for countries that import goods priced in dollars. For consumers outside of the U.S., energy and food are where it matters most these days. The war in Ukraine and sanctions against Russia already caused prices to skyrocket for grains, fertilizer, oil, and natural gas. The strong dollar just adds to the pain.

- Where do you think things are going from here?

- Turning points are hard to predict, because the dollar's movements are subject to long bull and bear cycles. It's easy to see that those ups and downs have turned out to be remarkably similar in magnitude and duration. The dollar is now 50% above its 2011 low. It would not be surprising to see at least a temporary reversal, because currency traders have made big bets that the dollar will continue to run higher from here. This overwhelmingly bullish positioning in favor of the dollar actually should be viewed as a contrary signal. Taking a longer view, we're hesitant to say that the U.S. currency is on the cusp of a major decline. The U.S. enjoy some important fundamental advantages over many other countries. They include energy independence and economic resiliency, relatively high interest rates, and a federal reserve still intent on tightening monetary policy to the extent needed to break the back of inflation.

- Thanks, Jim. As your OCIO, SEI is focused on the impact the currency market volatility has on our clients. We incorporate these discussions into our advisory process as the impact varies based on each client's goals. For more of SEI's insights, read our latest Economic Outlook available on our website.

Important information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Positioning and holdings are subject to change. All information as of the date indicated. There are risks involved with investing, including possible loss of principal. This information should not be relied upon by the reader as research or investment advice, (unless you have otherwise separately entered into a written agreement with SEI for the provision of investment advice) nor should it be construed as a recommendation to purchase or sell a security. The reader should consult with their financial professional for more information.

Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such sources are believed to be reliable, neither SEI nor its affiliates assumes any responsibility for the accuracy or completeness of such information and such information has not been independently verified by SEI.

 

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