Vanguard examines whether the U.S. dollar is misaligned with fundamentals and what that means for global markets and portfolios. The paper argues the dollar is near fair value despite prior strength, challenging narratives of sustained overvaluation. It also links currency swings to global growth slowdowns and asset return implications.
The U.S. Dollar at A Crossroads: Estimating Fair Value
Vanguard
Roger Aliaga-Diaz
Research
6 Pages
Key Takeaways
Dollar Near Fair Value: After a ~20% surge from 2014–2015, models suggest the USD is now broadly aligned with fundamentals, limiting expectations for large directional moves without new shocks.
Growth Sensitivity Highlighted: Dollar strength coincided with global industrial growth falling from 3.5% to 1.5%, reinforcing how currency appreciation tightens global financial conditions.
Return Impact Transmission: USD fluctuations materially affect cross-asset returns, with currency moves influencing both international equity performance and global financial conditions over full market cycles.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
