The DXY reached the highest level since 2017 today

The DXY or US dollar index is moving to the highest level December 2016. The index moved above the 2020 high at 102.99. It currently trades at 103.094 after reaching a high of 103.282 (see weekly chart above)..

From the January low to the high today, the index is up 9.11%. From the December 2020 low, the greenback is up 15.38%.

The rise is in reaction to the strong growth in the US, the expected slower growth in the ECB due to the Ukraine war and sharply higher energy. The China economy slowing is also a drag on economies in general. China is fighting Covid and the impact of the lockdowns.

When there are disparities, you get trending markets in the currencies .


Like interest rates, currency rates act as a counter balance to a stronger or weaker economy. The value of a currency versus another currency influences the economics within those respective countries.

A stronger currency vs another tends to slow growth and inflation in the stronger country, and increase growth and inflation in the weaker economy.

Generally speaking, about 40% of all revenue for companies in the S&P 500 comes from outside the United States, mainly Europe and Asia.

All things being equal, when the dollar rises against the EUR, JPY, GBP or CNY - like it has been in 2021 and 2022, it hurts the US economy in two ways:

  • Prices of American-made goods become more expensive to customers in Europe, Japan, UK, China, etc. That should slow economic growth, and
  • Goods that sell in foreign countries are bringing in fewer dollars and leading eventually to lower revenues and earnings on quarterly financial reports.

Conversely, for the Eurozone, Japan, UK and China, etc.,

  • Prices of their foreign-made goods become cheaper to customers in the US, and
  • Goods from those foreign countries are bringing in more EURs, JPY, GBPs and CNH and will lead eventually to higher revenues and earnings on quarterly financial reports.
  • So inflation in the US has a stronger dollar headwind (downward bias), and there is also a slowing from overall economic activity (all things being equal).

    Meanwhile, in the foreign country, the dynamics are the opposite. Inflation pressures rise as does the potential for growth. This is also all things being equal.

    Of course, there may be slippage caused by things like the supply chain which may delay price reaction, or inelasticity of demand, i.e., the US consumer may not care about the 10% higher cost of their Italian made leather goods.

    Conversely, European consumers may be reeling from the sharply higher energy prices and the potential for war in June to notice US goods are cheaper.

    Buyers and sellers in respective countries may also not pass on the currency impact to consumers (up or down).

    So it is not a perfect science.

    However, it can can and should have an impact, until there is more of a balance and potentially a move the other way.

    The Federal Reserve meets next week, and although they don't comment about the value of the US dollar. That is controlled by the US treasury.

    Nevertheless, I wonder if Fed Chair (and others) may start to include the higher dollar (along with higher interest rates ) as a counter inflationary force that will lead to slower inflation in the future?

    Also when will US companies start to feel more of a pinch from the impact of a higher currency on earnings as well?

    Below is the where the major currencies are trading vs the USD going back in time:

    • EUR is at the lowest level since March 2017
    • GBP is at the lowest level since July 2020
    • JPY is at the lowest level since April 2002 (yes 2002)
    • CHF is at the lowest level since May 2020
    • CAD is at the lowest level since March 2022
    • AUD is at the lowest level since February 2022
    • NZD traded below the 2022 low by a couple pips today taking the price to the lowest level since September 2020
    • CNH traded at its lowest level since November 2020

    PS. Perhaps more of an immediate impact is that a lower currency (i.e. EUR) also makes traveling to that country more affordable for US residents (it is cheaper to go to the UK, and Europe now). Conversely, the impact of the higher dollar should decrease the travel of foreigner into the US (the dollar is expensive).