How Should Investors Play the Dollar?
The defining event for the world’s currencies through most of 2009 was the steady and steep decline of the dollar. In 2010 the dollar will be center stage again—only this time it will be a highly volatile greenback that challenges investors. In 2009 Asia and Latin America had more dynamic economies than the U.S., so buying securities abroad was a no-brainer: Americans invested $46 billion in overseas markets. That shift put downward pressure on the dollar. So did massive trade and budget deficits in the U.S., a low interest rate policy by the Federal Reserve, and the slow erosion of the dollar’s role as the world’s reserve currency. The greenback slid almost 17% between early March and late November against a basket of major currencies—the biggest decline for the dollar in any eight-month period since 1986. Investors who shunned dollars also enjoyed a currency boost that added to their return. The Brazilian Bovespa index, for example, rose 85% for the year when measured in the local cu
