The dollar is performing in a strange manner as it is failing to conform to tradition and appreciate in value when the yields of US government debt are rising.

The increased return on offer, particularly relative to that available from the debt of other governments, would usually attract foreign investment. This, in turn, would inflate demand for, and the value of, the home country’s currency.

But according to data from exchange-traded fund provider PowerShares the US dollar index, which measures the performance of the dollar against several other major currencies, is down 12% since it peaked at the end of 2016.

PowerShares’ head of multi-asset research Paul Jackson reckons explanations for the weakness, including the deficit, the unpredictability of Donald Trump and better economic conditions outside the US, are unconvincing.

He says: ‘Leaving aside the effects of a full-blown trade war, which we think would be dollar negative, we believe the dollar is in line with long term norms and that in the short term it may adjust upwards to “re-converge” with yield spreads.’

Jackson notes this would be positive for non-US equities and negative for dollar-denominated commodities.

UK-listed companies with substantial US sales which would see the most benefit from dollar strength include equipment hire firm Ashtead (AHT) and plumbing products business Ferguson (FERG). (TS)

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