US Dollar Index is sitting at its highest level since 2010. Despite the FED keeping interest rates very low, USD is gaining in strength. So why the sudden and sharp move higher for the U.S. currency, even as the Federal Reserve last week said it would keep interest rates low “for a considerable time”?
Arguably, the currency and bond market may have been more focused on the so-called dot plot, which showed some Fed officials projecting interest rates will have to rise faster when the time comes next year. After Fed Chair Janet Yellen made her case, the dollar index shot up with bond yields, and equities soared to new highs.
Does a strong USD means a strong US economy? A strong dollar increases the purchasing power of the greenback. So the money in your wallets and purses buys more goods and services.
Conversely, when the dollar crashed in the 1970s—especially relative to gold—the economy collapsed into a crippling stagflation. From 1999 to 2009, the dollar index dropped by almost 40 percent, with only a brief surge between 2004 and 2006. The economy and wages were sluggish at best.