Investors across the board are convinced that higher rates are coming. So what could this mean for the global financial markets?
Conventional wisdom would say that higher interest rates will provide strength to the US Dollar Index. We’ve heard that echoed since school, in economics, and pretty much all of 2015 on the television.
But there’s just one problem with that: It isn’t always true.
In fact, looking back over the past twenty years at the past three higher interest rate cycles and you’ll see that the US Dollar Index declined during two of those time periods. Yep, so much for conventional wisdom.
The chart below highlights what occurred with the US Dollar Index when interest rates increased in the mid-’1990s (for example).
Sometimes there’s a difference between real world and academics. Investors need to be careful which one they choose to put there money to work. Studying and following the price action can save you a lot of money. Price is often forward looking and, at the end of the day, dictates whether we make money or lose money.
Thanks for reading and have a great week!
Further Reading: What History Says About Fed Rate Hike Cycles And Stocks
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Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.