The US dollar has been on the rise in the past week. In fact, the US Dollar Index (DXY) tracks the performance of the US dollar against a basket of top foreign currencies and has risen by 4% from its low of 100.82 on February 3rd.
Why did this happen?
Higher interest rates make the currency more attractive to international savers and investors, and investors are anticipating a peak rate of around 5.4%. Recent US economic data suggests that the Federal Reserve will need to raise rates even higher to bring inflation sustainably back toward its 2% target. Additionally, in times of market turbulence, investors flock to the safe-haven dollar.
So, are high interest rates always bad?
Historically, interest rates of 5% or more were the norm, and stocks performed well during those periods. Higher interest rates can encourage people to save,...