Don't Worry Over Currencies
The impact of currency movements on equity allocations has been negligible over the long term, so investors holding unhedged Medalist funds should stay the course.
Note: This article is an excerpt from the Morningstar research paper The Impact of Foreign-Currency Movements on Equity Portfolios. A copy of the paper can be found here.
The U.S. dollar has staged an impressive rally over the past year. Although it has taken a bit of a breather recently, there are reasons to expect the dollar to remain strong, at least over the next year or two. The U.S. Federal Reserve is likely to raise rates in the next 12 months, which would be the first increase since 2006. The Bank of Japan and the European Central Bank, on the other hand, plan to maintain extremely low interest rates in their countries for the foreseeable future. Both central banks hope to stoke inflation and keep the yen and euro weak relative to the dollar in an effort to boost exports. These measures should support a stronger dollar, at least relative to the yen and euro.
Patricia Oey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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