Impact of the U.S. dollar

Sources: Bloomberg and Wells Fargo Investment Institute. Dollar represented by DXY Index (quarterly data from January 1, 1967 to September 30, 2021). Corporate profits are seasonally adjusted (quarterly data from January 1, 1967 to June 30, 2021). U.S. manufacturing represented by Institute for Supply Management Manufacturing PMI (quarterly data from January 1, 1967 to September 30, 2021). Global manufacturing represented by Global Markit Manufacturing PMI Index (quarterly data from June 1, 1998 to September 30, 2021). Commodities represented by Bloomberg Commodity Index (quarterly data from January 1, 1990 to September 30, 2021). Global equities represented by MSCI All Country World Index USD/Local Currency (quarterly data from March 1, 1988 to September 30, 2021). Global fixed income represented by Bloomberg Multiverse Index Hedged/Unhedged (quarterly data from March 1, 1999 to September 30, 2021). Index returns do not represent investment performance or the results of actual trading. Index returns reflect general market results, assume the reinvestment of dividends and other distributions, and do not reflect deduction for fees, expenses, or taxes applicable to an actual investment. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. MSCI All Country World Index is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. It consists of 46 country indexes comprising 23 developed and 23 emerging market countries. (MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.) Bloomberg Multiverse Index provides a broad-based measure of the global fixed-income bond market. The index represents the union of the Global Aggregate Index and the Global High-Yield Index and captures investment grade and high yield securities in all eligible currencies. Bloomberg Commodity Index is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually, weighted two-thirds by trading volume and one-third by world production, and weight-caps are applied at the commodity, sector, and group level for diversification. Global Markit Manufacturing PMI Index, which is an index developed from monthly business surveys used to monitor the condition of industries and businesses. An index value over 50 indicates expansion; below 50 indicates contraction. The values for the index can be between 0 and 100.

1. Dollar depreciation periods are quarters with a declining value in the DXY Index. Dollar appreciation periods are quarters with a rising value in the DXY Index. The DXY Index measures the value of the U.S. dollar relative to major developed market currencies, notably the euro, the Japanese yen, and the British pound.

Key Takeaways

  • An appreciating U.S. dollar has tended to contribute to corporate profits and U.S. manufacturing activity.
  • A falling dollar has typically enhanced global equity, commodity, and unhedged fixed-income performance.