The U.S. dollar and investment performance
MONTHLY MARKET COMMENTARY |
In 2014, the dollar increased more than 9 percent relative to other currencies, reaching its highest value since 2005 (Source: Federal Reserve). In general, the rise in value provided a tailwind for dollar-denominated securities and a headwind for those tied to foreign currencies. Asset classes that benefited were the Russell 1000 Index and Russell 2000 Index, which were up 13.2 percent and 13.5 percent, and the Barclays U.S. Aggregate Bond Index, which ended 2014 up 6 percent. Those hurt by the foreign to U.S. currency exchange rate included commodities, which continued their collective slide in December and ended the year down 17 percent. Less dramatic were declines in international stocks and emerging market bonds, which declined 4.9 percent and 5.7 percent for the year.
Investor movement into U.S. dollars and dollar-denominated securities reflects the economic outlook and state of monetary policy for the U.S. versus other areas of the globe. In the U.S., an improving economy is expected to provide additional growth over the coming year. The prospect for improved growth has been drawing global investors to the U.S. dollar in anticipation of increasingly attractive interest rates. Contrarily, other global economies have continued to struggle, with major central banks in Europe and Japan weakening their currencies with their efforts to fight slow economic growth and stimulate inflation.
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