Rising inflation and a falling dollar have sparked fears among Americans that the purchasing power of their investments will steadily shrink.
Over time, a weak dollar can reduce the real value of money held in savings accounts and long-term bonds, but it also creates opportunities for investors who participate in the upside of a falling currency.
A Federal Reserve index released in May puts the U.S. dollar at its lowest level in nearly 40 years. The Broad Dollar Index, which compares the dollar against the currencies of a large group of trading partners, stood at 81.3 in April, compared to peaks of 128 in March 1985 and nearly 108 in January 1973.
The decline of the dollar has dampened demand for long-term Treasury debt, but it has stimulated U.S. exports to other countries by making America’s products relatively less expensive. The weak dollar is going a long way to support the Obama administration’s goal of doubling exports in the next five years.
Manufactured goods represent 60 percent of total U.S. exports of goods and services, said the National Association of Manufacturers, adding that “the number one factor affecting their exports is the value of the dollar.”
One way to push gains up when the dollar is down is to invest in companies that benefit from a weak dollar. Historically these are companies that are big exporters. Some investors choose to invest in economies that are growing at a faster rate than the U.S. economy, and others have turned to gold, a perceived refuge in times of financial uncertainty.