U.S. dollar strength was supposed to be one of the big investing stories of 2017. Instead, the greenback surged after the November election but has been on a downward slope since the calendar flipped. Overall, the dollar is right about back to where it was last year at this time.
Jim Paulsen, chief investment strategist of The Leuthold Group, thinks the dollar may have room to run — to the downside. That's a contrarian call, considering the Fed raising rates usually leads the American currency higher.
Paulsen has some guidance for investors in the event that he's right:
If the U.S. dollar does surprise, and weaken, the primary impact would be intensified U.S. inflationary pressures. ... A decline in the U.S. dollar would likely boost commodity prices and investors may want to consider adding some real asset exposure during the balance of this recovery. ... U.S. dollar weakness favors international over domestic investments. ... A new downward trend in the U.S. dollar would likely push the price of crude oil above $60 for the first time in more than two and one-half years. This would suggest opportunities among the beaten-down energy stocks, the materials sector, and among industrial stocks. ... Financial stocks should remain market leaders while selling pressures may intensify in the utilities, telecom, and consumer staples sectors. ... Cyclical sectors and value stocks should outpace more growth-oriented parts of the stock market. ... Finally, a period of dollar-induced reinflation argues investors should overweight small- and mid-cap stocks.
Perhaps the U.S. dollar will remain range bound during the rest of this year and financial market trends will be driven by other events. However, the fundamentals underlying the U.S. dollar have turned less favorable in the last couple years, increasing the risk that the U.S. dollar breaks south and captures the attention of investors.
So pay attention and go make some money!