Strong dollar is a signal of a major market event rate hike – Business Insider

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The dollar is set for its strongest quarterly strengthening since 1992, according to Bank of America, a good sign that a rate hike is around the corner.

When markets expect that US interest rates will be hiked, it typically strengthens the dollar. That’s because people rush to change other currencies into dollars — they can make more money in dollar-denominated investments. The higher demand for the US currency drives its value up.

In the past, significant dollar gains against other currencies have pretty much happened only during periods of extreme financial or geopolitical distress.

The last four large dollar shocks in the past 45 years have been symptoms of huge financial events: the collapse of Lehman, Britain’s panicky ejection from the European Exchange Rate Mechanism (ERM) in 1992, the first Gulf War, and Paul Volcker’s shock rate hikes in the early 1980s.

Today’s surge is already considerably larger than the one that surrounded Lehman’s collapse, although the economic conditions are very different.

Read complete article via Strong dollar is a signal of a major market event rate hike – Business Insider.

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