The US dollar has been experiencing a sharp decline in value against other currencies, sparking concerns among investors. This is not an isolated incident, as the dollar’s fluctuations have occurred throughout this century due to various economic factors.
The primary cause of the current slide is tariffs, which should theoretically strengthen the dollar by making foreign products less attractive. However, the chaotic and unpredictable nature of US trade policies has created uncertainty, causing investors to shy away from the dollar.
This trend is particularly worrisome because it coincides with strong economic growth and constrained inflation. The dollar’s fall raises questions about the stability of the US economy and its ability to maintain a stable fiscal course.
Investors should take note that businesses with significant exposure to international sales benefit when the dollar falls, as their revenues in euros or yen are converted back to dollars. Companies like Netflix, Booking Holdings, and Mastercard have high proportions of sales abroad and may be attractive investments.
In contrast, European banks such as UniCredit and Raiffeisen Bank International offer attractive alternatives due to their domestic focus and resilient currencies. Brazilian stocks like Banco Bradesco and small caps StoneCo and Cogna Educacao also present opportunities for investors seeking to diversify their portfolios.
While currency trading is best left to professionals, investors can use part of their portfolio to hedge against the potential decline in the dollar by investing in stable assets or diversifying their investments. As economist Kenneth Rogoff warns, the US currency’s lofty status may be on the wane, and wise investors will want to take action to protect their portfolios.
Note: The article has been rewritten to simplify complex sentences and concepts while retaining essential information.
Source: https://www.kiplinger.com/investing/the-dollar-index-is-sliding-is-your-portfolio-prepared