Dollar may turn

NEW YORK – With higher prices at the gas pump and the grocery store, consumers might not be looking favorably at the dollar – one of the reasons for the recent run-up in commodities prices. But for investors, bad feelings about the dollar could dissipate if the greenback shows greater strength.

The Federal Reserve’s decision last week to lower interest rates by a quarter point wouldn’t on its face seem likely to help the anemic dollar. That’s because investors from around the world will be more likely to look for higher yields elsewhere with each rate cut the Fed makes. So places like Europe, where interest rates are higher, draw investors away from the U.S. But last week’s move might have been different because some economists have written that the Fed is likely to sit on its hands in future meetings and leave rates unchanged.

So with U.S. interest rates perhaps near a turning point, investors with currency holdings might want to re-evaluate their portfolios to see whether it’s time to tweak any of their positions.

Bruce McCain, head of the investment strategy team at Key Private Bank in Cleveland, noted that the precipitous decline in the dollar could mean it’s due for a rebound. He said short-term speculation has probably muscled the dollar lower than it probably deserves to go. “Markets often go to an extreme before they reverse,” he noted.

While a change in the direction of the dollar could occur, investors would still likely have to endure volatility.

Ryan Caldwell, co-portfolio manager of the Ivy Asset Strategy fund, contends investors could know in a matter of weeks whether the dollar is poised for a sizable rebound. But the fund isn’t taking any chances – it has about one-third of its investments in non-dollar denominated assets.

“What we’ve been doing is in a way straddling the fence,” he said of the fund’s strategy. “We have a fairly marked position in equities. Those are largely focused on global growth. We have the flexibility to be really in any domestic market.”

He’s also cautioned that the Fed may not pause in its string of rate cuts as some investors are predicting. “If the market comes to the conclusion that the economy continues to soften and the Fed is not done, we think the dollar is going to take another hit,” he said.

But if the U.S. economy shows signs it might be on the mend, the dollar could reclaim some of the ground lost in recent months, he said. “If we firm up here then what we’d see is the dollar firming up the against the euro and probably the (British) pound.”

But while a rebound in the dollar could be welcomed by investors, consumers might have to wait longer to see the effects of any strengthening.

Sazia Syed, an accounting student, said she doesn’t invest in currencies but nonetheless remains frustrated with the dollar. She said moderate gains in the currency haven’t seemed to make a dent in food prices. “When I go to the grocery store it still costs more than it used to,” she said, noting that some costs, such as the price of rice, have surged. “You cannot buy less of the important stuff. You just have to go with the flow.”