After falling more than 3% during
the first quarter, the value of the
U.S. dollar (as measured by the
benchmark U.S. Dollar Index/DXY) has
roared back since mid-April and by midyear
was about 6% above its low point in
February. The dollar’s decline at the start of
the year was puzzling, given that interest
rates moved sharply higher during the first
two months of the year and they tend to
move in tandem with the dollar.
However, when yields moved higher again
in April, the dollar returned to the typical
pattern and moved higher with them. The
dollar’s outperformance also benefitted
from the weaker-than-expected first-quarter
economic performance in several
The ECB’s recent move to rule out an interest
rate hike through at least the summer of 2019
was a dovish surprise to the market and we
believe it will weigh on the euro in the months
ahead. The dollar’s recent appreciation is not
surprising, given the rise in yields, and we
think the dollar could hold those gains for the
balance of the year.
The U.S. dollar may hold gains
through the remainder of the year.
Emerging market currencies have been hit
hard by the appreciation in the dollar and
rising interest rates. Oil-importing emerging
economies also were squeezed by the
move higher in crude prices. This was
another unusual occurrence, as the dollar
and crude oil prices tend to move in
opposite directions. Emerging market
currencies could continue to feel the strain
of higher U.S. yields, a stronger dollar and
tighter global liquidity.
Past performance is not a guarantee of future results.
Investment return and principal value will fluctuate, and it is possible to lose money by investing. International investing involves additional risks, including currency fluctuations, political or
economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in the energy sector
can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and
the cost assumed by energy companies in complying with environmental safety regulations. These and other risks are more fully described in a Fund’s prospectus.
The opinions expressed are those of Ivy Investment Management Company, are current through June 2018 and are subject to change at any time based on market and other current conditions.
No forecasts can be guaranteed. This information is not a recommendation to purchase, sell or hold any specific fund or security mentioned or to engage in any investment strategy. Funds or
securities discussed may not be suitable for all investors.