A Stable Dollar Is a Valuable Dollar

Have the currency markets stabilized? Below is a chart of the value of the U.S. dollar compared to a basket of international currencies. US Dollar Currency Index (DXY)

The chart shows that, after a significant increase a year ago, dollar exchange rates have remained steady and may be heading lower. This is good news for investors in large U.S. corporations that do a lot of business overseas. A less dominant dollar will allow profits from foreign operations to convert back into the U.S. currency at a more favorable rate leading to better earnings compared to previous quarters. Sectors such as information technology, healthcare, and consumer goods should do well. Microsoft, Google, Johnson & Johnson, Abbott Labs, Clorox, and Colgate Palmolive are some examples.

Frederick Maxted                                                                                                                                                                                                                                    1 July 2016