The trials of the U.S. dollar have been debated for years. Sure, it’s gotten some of its foreign counterparts beat, but it’s also taken a backseat to other major players such as the euro. Now it seems that investors may want to brace themselves as reports show that a long-term decline may be in the near future for the greenback.
A report by Merck Investments has provided reasons as to why the strength of the U.S. dollar may not be so evergreen. Let’s take a look some of the highlights from the report:
Higher interest rates spell a weaker U.S. dollar
- We can’t rely on history. The U.S. dollar has typically weakened in a rising rate environment due to the fact that foreigners are large holders of Treasuries. But as rates rise, those Treasuries are at risk of losing value, providing a disincentive for holding onto them. Historically, the dollar has benefited during late stages of a tightening cycle as the decline of Treasuries might be reverted again (such as the next bull market in Treasuries is anticipated). However, because we’re not in a “typical” environment, the U.S. shouldn’t rely on these statistics. Read more about this story on PBJ.com.