{"id":65695,"date":"2023-09-26T14:25:30","date_gmt":"2023-09-26T18:25:30","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-strong-dollar-is-bad-for-the-stock-market-what-to-watch-next\/"},"modified":"2023-09-26T14:25:33","modified_gmt":"2023-09-26T18:25:33","slug":"the-strong-dollar-is-bad-for-the-stock-market-what-to-watch-next","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=65695","title":{"rendered":"The Strong Dollar Is Bad for the Stock Market. What to Watch Next."},"content":{"rendered":"
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The U.S. dollar was flirting with another day of gains on Tuesday, with the greenback rallying alongside Treasury yields amid investor worries about interest rates staying higher for longer than once thought. It looks like more of a problem for stocks.<\/p>\n

The
\n U.S. Dollar Index,<\/span>
\n which measures the currency against a basket of six peers, rose more than 0.2% on Tuesday to above 106.2, before settling lower around the 106 level. The index has gained 0.8% across the past five days and is up more than 6% from July lows, now hovering at its highest points since November 2022.<\/p>\n

\n

The
\n WSJ Dollar Index,<\/span>
\n another metric of the greenback\u2019s relative strength that measures against a wider basket of 16 currencies, rose 0.1% on Tuesday, on track for its sixth straight day of gains.<\/p>\n

While the dollar remains below its peak 11 months ago\u2014October 2022 marked its strongest level in 20 years\u2014a rapid rise in recent weeks should be concerning to investors, because it has important implications for the stock market.<\/p>\n

Stocks have slipped while bond yields and the dollar popped since the Federal Reserve\u2019s latest monetary policy decision on Sept. 20. While the Fed held interest rates steady, it flagged that borrowing costs may have to rise further to sufficiently tame inflation, with Fed officials projecting rates above 5% through 2024.<\/p>\n

\u201cInvestors are dumping government securities in favor of cash amid expectations that interest rates in the U.S. may yet rise further,\u201d said Raffi Boyadjian, an analyst at broker XM. Indeed, when rates rise\u2014or expected to rise\u2014so do bond yields, making moving cash into the U.S. currency to take advantage of relatively globally high risk-free returns on government debt more attractive.\u00a0<\/p>\n

The yield on the benchmark 10-year U.S. Treasury surged to above 4.5% from 4.36% before the Fed\u2019s meeting last week, trading at its highest levels since 2007.\u00a0<\/p>\n

Higher bond yields themselves cause problems for stocks, as investors have less incentive to buy riskier bets like equities when safe Treasury returns are so high. But elevated yields also propel the dollar skyward\u2014and that\u2019s another matter altogether. When the greenback is stronger relative to its peers, corporate profits recorded in foreign currencies are weakened, which can be a problem for the multinational companies that stack the
\n S&P 500
\n index.<\/p>\n

And it isn\u2019t just Treasury yields boosting the dollar, but a gloomy global backdrop, too. Government bond yields have rallied elsewhere around the world, but a grim economic picture\u2014from China, on the verge of a property crisis, to European economies such as Germany at risk of recession\u2014has also weighed on rival currencies.<\/p>\n

The dollar on the verge of a breakout could be the next major headwind for the stock market, as Barron\u2019s<\/em> reported when the greenback topped 105. Now it\u2019s at 106. As Boyadjian said: \u201cThere\u2019s no stopping the dollar.\u201d<\/p>\n

Investors should watch data out Friday in the form of the core personal-consumption expenditures (PCE) index, which is the Fed\u2019s preferred measure of inflation. It could be the next major catalyst that shifts the needle on expectations for where rates\u2014and, thus, bond yields and likely the dollar, are going.<\/p>\n

\u201cThe next update on the inflation front will be Friday\u2019s core PCE price index, which had edged up in July,\u201d said Boyadjian. \u201cIf the Fed\u2019s favorite price gauge falls to 3.9% in August as forecast, the rally in bond yields might pause for breath, halting the U.S. dollar\u2019s advance.\u201d<\/p>\n

Write to Jack Denton at jack.denton@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The U.S. dollar was flirting with another day of gains on Tuesday, with the greenback rallying alongside Treasury yields amid investor worries about interest rates staying higher for longer than once thought. It looks like more of a problem for stocks. The U.S. Dollar Index, which measures the currency against a basket of six peers, […]<\/p>\n","protected":false},"author":1,"featured_media":65696,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-65695","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThe Strong Dollar Is Bad for the Stock Market. 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