The Last Safe Haven Standing
You know it’s bad out there when investors are selling the safe havens. Stocks, bonds, gold, where’s all the money gone? It’s actually right under our noses. The United States Dollar (USD) is benefiting from a global flight to safety!
The star-spangled greenback gained around six points this week to hit its highest level in eighteen years. One or two points would’ve been considered big news; six points implies something seismic.
The dollar heat is coming from investors’ cold feet. There’s a run on the bank. Everyone wants cash-in-pocket, now, not later, and it’s because the economy might be sinking into a recession. Eek!
That’s because, despite the Federal Reserve pumping trillions into the economy to match what quarantined consumers and rattled investors are taking out, the markets have never handled a virus before. There’s no playbook.
Traders can hop between currencies on the foreign exchange (Forex) market. Every country’s coinage trades relative to international peers, so riskier currencies like the Mexican peso and Malaysian Ringgit fell this week against the much safer American dollar.
Economies with better trade balances, more stable politics, and arguably less COVID-19 cases tend to hold their ground better against a surging dollar, and that’s important for stocks, too.
Say you invest in Apple, based in Silicon Valley. You’re investing in the USA. You’re investing in the US dollar. It benefits you to see franklins going up. Other folks in the Invstr Fantasy League might have bought stocks like Honda from Tokyo, Japan, Carlsberg from Copenhagen, Denmark, or Louis Vuitton Moet Hennessey from Paris, France.
Those are investments in the yen, the krone, and the euro. They might rise and fall against each other, or rise and fall as a group relative to your dollar bet. It’s a session-by-session, year-by-year, and decade-by-decade seesaw. Your job? Stay one trade ahead!
