US Dollar Reaches Parity With Euro: Why A Strong Dollar Is Bad News For These Stocks

Zinger Key Points
  • The U.S. dollar and the Euro are equally valued for the first time in 20 years.
  • Federal Reserve tightening continues to drive the dollar higher in 2022.

The Invesco DB US Dollar Index Bullish Fund UUP traded higher by 0.1% on Wednesday as the value of the dollar has climbed in-line with the value of the euro for the first time in nearly 20 years.

Inflation Is King: Wednesday morning's news that the consumer price index (CPI) increased 9.1% from a year ago in June sent both the SPDR S&P 500 ETF Trust SPY and the Vanguard European Stock Index Fund ETF VGK tumbling, but the U.S. dollar remained unscathed, rising to a 20-year high against a basket of international currencies.

Related Link: US Economy Adds 372,000 Jobs In June, Another 0.75% Fed Rate Hike 'Almost A Certainty'

While inflation has driven down the purchasing power of the dollar for many Americans in 2022, the dollar remains the gold standard among international currencies in a highly inflationary environment. The UUP fund is now up 12.5% year-to-date.

Not only is the dollar outperforming other currencies, it is also leaving common inflation hedged Bitcoin BTC/USD and gold in the dust this year. The SPDR Gold Trust GLD is down 5.6% year-to-date, while the price of Bitcoin has plummeted 59%.

How To Play It: For stock investors, DataTrek Research co-founder Nicholas Colas said Wednesday the strong dollar is an issue worth watching heading into second-quarter earnings season.

"The recent runup in the dollar is a challenge for both emerging market equities and economies as well as U.S. equity sectors with high levels of offshore revenues. Tech leads that list, at 58% offshore sales," Colas said.

Related Link: Hold On To Your Wallet Following Fed Minutes

If Colas is correct, investors should potentially avoid the iShares MSCI Emerging Markets ETF EEM and the Technology Select Sector SPDR Fund XLK as companies report second-quarter earnings in the coming weeks. Benzinga's Take: Tightening by the Federal Reserve in 2022 has made the dollar more attractive for investors relative to the Euro. U.S. interest rates are expected to approach 3% bhy the end of the year, while they remain near zero in Europe as a potential energy crisis looms.

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Posted In: Analyst ColorEurozoneForexTop StoriesMarketsAnalyst RatingsTrading IdeasDataTrek ResearchNicholas Colas
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