The US dollar is surging, and that could spell trouble for markets

While Wall Street has been focused on trade talks and diplomatic tensions over the summer, the U.S. dollar has quietly crept to its highest levels of the year.

The DXY U.S. dollar index, which measures the greenback against a basket of currencies, has surged since April lows to hold year-to-date highs through July.

Speaking with CNBC's "Trading Nation," Michael Binger, senior portfolio manager at Gradient Investments, warns investors not to ignore the headwinds created by a surging U.S. dollar.

  • A stronger U.S. economy relative to international economies has contributed to the dollar rally, while trade tariff rhetoric has pushed investors to seek out the currency as a safe haven asset.
  • The U.S. trade deficit will likely rise as consumers take advantage of a strong dollar to buy an increased amount of overseas goods and services.
  • Emerging markets will continue to feel pressure as it becomes more expensive in a local currency to purchase dollar-based commodities and debt.
  • U.S. multinationals will also get squeezed. Companies that generate revenues overseas have to convert international sales back into U.S. dollars, reducing the overall amount.
  • Longer term, the dollar should move lower than where it is today, due to the large U.S. trade deficit and mean reversion of international interest rates and economic growth.
  • In the short term, the continued strength in the dollar could persist.

Bottom line: The U.S. dollar’s rally is going to bring more pain to emerging markets and U.S. multinational companies.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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