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A couple weeks ago, I predicted that the U.S. dollar would become even more volatile than what we were seeing at that time.
And thanks, in part, to the escalating situation with North Korea – that's exactly what's happening right now.
This is important to pay attention to because this volatility can affect anything from the price you pay for a gallon of milk to the costs of getting home repairs done.
On top of that, it helps the Fed decide if and when to raise interest rates – which can also impact your bank and retirement accounts.
But it doesn't have to hurt you…
All you need to know is how to play the U.S. dollar – no matter where it goes from here.
Where to Put Your Money When the U.S. Dollar Is Weak and Strong
President Trump shocked many when he said the U.S. dollar is too strong. He said this back before his inauguration and was referring to China's valuation (or in his words, "manipulation") of their currency, the yuan, when making these comments.
What shocked so many people about his statement was that common belief that a strong dollar is a great thing. But keep in mind that it's not necessarily a win-win situation for everyone. That's what can make the mainstream's media coverage of the price of the dollar so hard to digest sometimes, like how a weakening dollar can account for a spike in oil prices.
So let's talk about the basics…
A "strong dollar" allows the United States to buy more goods from a foreign country. This can be good for Americans who buy foreign products, like electronics or pharmaceuticals, because it costs less to buy them. On top of that, a strong dollar benefits those traveling overseas on business or vacation because it's less expensive to travel and pay for lodging, food, and transportation.
On the flip side, a "weak dollar" means that the United States can't buy as many goods from a foreign country. In turn, it becomes more expensive for Americans to pay for foreign products and to travel abroad. That's because there's less purchasing power than with a strong dollar, so Americans are left to make up the difference in prices on imported goods.
But there's a good side and bad side to both scenarios…
When the dollar is strong, we can buy the things we need and want for less, which means we can get a lot more bang for our buck, so to speak. However, it costs more to manufacture U.S. goods overseas, which could affect the ability to sell these products. This could eventually lead to shrinking margins and, therefore, shrinking profits. And that could ultimately result in lost U.S. jobs due to halting, shutting down, or moving operations to another country altogether.
A weak U.S. dollar is often considered a bad thing because of the higher costs to export goods and services, especially overseas. But a weak dollar can be good in that exports can sell for much more. And the more that American companies can sell their goods at higher rates, the better the impact on sales and revenue. This not only keeps the companies in operation – it can also lead to growth and more jobs. And job creation is a great thing for the stock market.
Fortunately, there's a way to invest – and trade options – in a strong and weak dollar environment…
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.