International Money Market

Since 2004, the U.S. dollar has continued to devalue against the major currencies including the euro, which has been preferred in international trade. Meanwhile, U.S. stocks have lagged behind international efforts, and this trend should continue in the near future on the basis of fundamental principles of the U.S. economy.

The struggle of the U.S. dollar on international currency markets has changed the dynamics of the economic balance in the world and has increased the economic power outside the United States. U.S. investors are aware of the economic globalization as a fact reflected in their investment portfolios and are forced to redirect their strategies and invest in foreign markets. In the long term, globalization will make the international investment increasingly important for all investors.

The relative strength of the U.S. dollar relative to investor behavior is analyzed as follows:

A strong dollar helps some sectors of the U.S. economy, like retail, as the purchasing power of local consumers increases because they can buy foreign products at lower prices locally. On the other hand, a strong U.S. dollar hurt exports from the United States because U.S. products are more expensive relative to foreign goods abroad and in the long term this can lead to gains from U.S. companies to shrink. Instead, a low consumption due to dollar limits imported goods more expensive there, but profits of U.S. companies, because they become more competitive abroad.

In this context, the impact of the U.S. dollar on an investment portfolio depends on the amount of foreign investments held in the portfolio. For example, if a U.S. investor holds a portfolio that is allocated 70/30 Foreign Investment and the U.S. dollar weakens, the portfolio will have high return on investment due to the appreciation of the value of international assets from the U.S. dollar. Instead, with a different distribution of foreign investment or with a strong dollar, the yield on the portfolio would be totally different.

Another important factor for U.S. investors regarding U.S. dollar is the broader economic conditions, both the U.S. and abroad. At home, the U.S. trade and budget deficits are a consistent pattern of uplift and the struggling U.S. dollar has been unable to stop the influx of foreign products flooding the U.S. market mainly from China and other emerging markets. Consequently, the budget deficit the U.S. has kept U.S. investors in the U.S. market, while inflation is maintained and not in line with interest rates. Overseas, emerging economies are becoming stronger, with China on the head. This will most likely put more pressure on the U.S. dollar is expected to weaken further, especially against the euro.

In conclusion, the expansion of overseas economies is increasing pressure on the economy of the United States. Foreign investors, who have already seen the U.S. economy as the safest in the market to invest, now spend their preferences for emerging economies or markets with stronger economies and currencies. Therefore, in order to anticipate these changes on a long-term, U.S. investors need to consider international investment. Rather than focusing solely on the U.S. dollar, investors should consider the broader economic conditions that affect its value and, consequently, the impact of their investments. U.S. investors holding international assets are more likely to see higher returns on their investments if currencies appreciate against the U.S. dollar. However, there are also risks associated with investments in different markets, mainly political, country, currency and credit risk.