Dollar overvalued?

[mattee2264]

Anyone have any thoughts on exchange rates? I'm a UK investor so a lot of the benefit of cheaper global stock prices has been dilutes by a decline in the purchasing power of the £. In part due to internal UK issues but the dollar strength has been a major factor. 

 

The dollar is at multi-decade highs against other major world currencies. In part it seems understandable

 

-US economy looks the strongest and it doesn't have the same energy crisis Europe faces this winter and might even be able to take advantage and up its energy exports

-Fed is more aggressive than other central banks so relative interest rates are higher than other major economies

-USD has a safe haven function with all the turmoil in the world 

-Alternative currencies look unappealing 

 

But the US economy won't be immune if the global economy goes into recession and also has fiscal deficits and current account deficits that tend to put downward pressure on currencies over time and the strong dollar should help moderate inflation which might allow the Fed to be less aggressive in the future while making inflation worse in other countries forcing their central banks to be more aggressive with rate hikes.

 

 

 

 

 

 

 

Edited September 25, 2022 by mattee2264

[Castanza]

By no means an expert but this is my elementary view that's probably riddled with holes. 

 

- Gold looks attractive if you're holding mostly anything but USD

- Price of Gold relative to USD shows demand/scarcity of the dollar

- Reserve currency doing its thing. At the end of the day countries owe debt in USD and the US has the most mature bond market out there. 

- You're right though, if the dollar gets too strong compared to other currencies I guess it's possible we could see write-downs by countries? (Idk I'll leave that to the experts)