Why the U.S. Dollar Will Continue to Rally

The U.S. dollar has had a rough few months. It has fallen against most major and emerging market currencies this year. A critical issue for global investors and policymakers is whether the dollar's uptrend is over or is this just a respite. Much is at stake with the answer.

The variability of exchange rates could account for one-third of the total return of a basket of international equities and twice as much for a basket of international bonds. Since many commodities are priced in U.S. dollars, the greenback's direction tends to influence their dollar price. Many emerging market countries and companies have borrowed dollars, and an appreciating dollar exposes a potentially painful currency mismatch.