Why a Strong U.S. Dollar Is Bad News for Investors
On top of higher inflation worldwide, corporate profits suffer when goods become more expensive at a time when other countries’ currencies are weaker against the U.S. dollar.


According to the U.S. Dollar Index, which measures the currency against a number of significant trading partners, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, the worth of the U.S. dollar has risen by nearly 9.3% during the past year. By comparison, the British pound plunged 11.2% over the past year.
"The greenback has gone ballistic," according to a Barron's piece in late September 2022, as the dollar hovered at a 20-year record high. Nearly every major currency lost value against the U.S. dollar throughout 2022 thanks to the Federal Reserve's campaign to rein in inflation with higher interest rates. The Fed is expected to continue regular rate increases into 2023.
While conventional logic would suggest a rising U.S. dollar bodes well during a period of runaway U.S. inflation, it is bad news for investors and the overall health of the American economy.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Cons of the Strong U.S. Dollar
A strong U.S. dollar means lower costs for imported goods, which translates to less-expensive consumer items, but in the face of a record inflation and quantitative tightening, it only exacerbates the ongoing contraction on multinational corporations’ top and bottom lines. About 40% of the revenue in the S&P is international. The tech sector specifically is greater than 50%.
Troubling U.S. and Global Implications
To make matters worse, the Russian war in Ukraine coupled with the high U.S. dollar valuation is very troubling. Most commodities are priced in dollars. This makes necessities like oil and wheat more expensive, threatening the ability of some countries to access sufficient quantities of essential supplies.
The same is true of public debt. The high U.S. dollar value bumps up the cost of interest payments for foreign entities and citizens with U.S.-based loans.
And, while a stronger dollar is slowing the rate of inflation in the U.S., it is increasing the rate of inflation in much of the rest of the world. The global economy is weakening, as a result.
The situation we face is a double-edged sword. Unfortunately, there is no simple solution. Continuing inflation in the U.S. would mean higher costs for consumers. A stronger U.S. dollar helps limit inflation. Yet, a stronger dollar means less revenue coming from abroad to fuel the profits of U.S. companies.
The Strong U.S. Dollar Triggers Worldwide Inflation and Economic Risk
The dollar's surge has made difficult situations worse in the rest of the world. Central banks in other countries must raise interest rates in an effort to prop up their currencies. But the higher rates contribute to weakened economic growth and higher unemployment.
Citizens from Cairo to Istanbul to Manchester, England, and around the globe face life-changing inflation, which threatens their livelihood and ability to afford a place of residence.
Inflation makes imports to other countries more expensive, adding to their pressures. Companies, consumers and governments outside the U.S. that borrowed in dollars experience greater pressure — since more local currency is needed to convert into dollars when making loan payments.
The global economy is expected to fall into recession in 2023, due in part to the worldwide chain reactions resulting from the strong U.S. dollar.
The Strong U.S. Dollar and Investment Prospects
In a rising-dollar environment, foreign investments generally underperform.
And the price of U.S. stocks and bonds won't be as attractive to foreign investors, since they'll be more expensive when purchased with currency of lesser value. A significant subgroup of the S&P 500 are companies like Apple, Microsoft and Alphabet, which derive a substantial percentage of their revenue from overseas. These companies could experience valuation pressures as revenues subside.
Overall, the knock-on effects of an overly strong dollar environment mean price pressures for U.S. stocks. As one rises, the other drops.
But certain types of stocks typically do well when the dollar is strong. Generally, if the dollar's value increases, U.S. imports increase, while U.S. exports fall. So investing in the right industries that export to the U.S. could result in profits.
Though a strong dollar seems like a positive component of a healthy economy, globalization makes it a drag on U.S. markets and economic growth, among other perils, in this rough market environment.
Curbing inflation by raising interest rates is a necessary action, but it does upset the balance of the global economy and create a challenging situation for investors, which requires thoughtful insight.

Josh Sailar is an investment adviser and partner at Blue Zone Wealth Advisors, an independent registered investment adviser in Los Angeles. He specializes in constructing and managing customized advanced plans for business owners, executives and high net worth individuals. He holds the designations of Certified Financial Planner (CFP®) and Certified Plan Fiduciary Advisor (CPFA), the FINRA Series 7, 63, 65 licenses, as well as tax preparer license.
-
Alaska Airlines to Buy Hawaiian: Get Bonus Miles Now
How to use the Alaska Airlines credit card and frequent flyer program to save on trips to Hawaii, Alaska and beyond.
By Ellen Kennedy Published
-
11 Reasons to Consider a 1031 Exchange
Deferring capital gains taxes might be at the top of the list, but growing your portfolio and your wealth and helping with estate planning are also compelling reasons.
By Daniel Goodwin Published
-
11 Reasons to Consider a 1031 Exchange
Deferring capital gains taxes might be at the top of the list, but growing your portfolio and your wealth and helping with estate planning are also compelling reasons.
By Daniel Goodwin Published
-
Why It’s Time to Give Bonds Another Look
Yields are much more attractive now, but you should use discretion to find the bond allocation that’s best for you.
By Bill Aldrich, CLU® Published
-
Is A Recession Looming? Two Big Bank CEOs See It That Way
Recession is likely, Citi's CEO told a Senate panel today, a sentiment echoed by JP Morgan's chief executive last week.
By Joey Solitro Published
-
Estate Planning and the Legal Quirks of Retiree Cohabitation
Creating an estate plan for an unmarried couple is already challenging, but when the cohabitating couple are in their golden years, it’s especially tricky.
By David Handler, J.D. Published
-
Seven Financial Planning Stops to Put on Your Map to Financial Security
Creating a comprehensive plan is just the start, though. Checking in regularly to make sure you’re still on track is imperative.
By Michael E. Lewis II, CFP®, CLU®, ChFC® Published
-
How to Measure the Health of Your Retirement Plan
These five key indicators can help you make decisions based on the overall performance of your retirement plan rather than individual variables.
By Brian Skrobonja, Chartered Financial Consultant (ChFC®) Published
-
Four Easy Ways to Get Yourself Fired
Being a standout on the job can sometimes be as simple as showing up to meetings on time, responding promptly to requests, doing your homework and not being a jerk.
By H. Dennis Beaver, Esq. Published
-
How Might the Great Wealth Transfer Change Society?
As $84 trillion in assets move from Baby Boomers to younger generations, we could see a greater emphasis on financial technology and investing based on values.
By Jennifer Wines, JD, CPWA® Published