Capital Ideas

Investment insights from Capital Group

U.S. interest rates may be on the rise, but has the dollar peaked?

Interest rates differentials vs US dollar

Interest rate differentials and the dollar usually trend in the same direction — but since early 2016, the two have moved in near-lockstep. Some might say that means the dollar is set to appreciate even further as the Federal Reserve quickens its pace of interest rate hikes.

But Capital Group currencies analyst Jens Søndergaard thinks that with real interest rate differentials already at 10-year highs, it’s more likely that the relative rates will narrow and the dollar will weaken.

“It’s hard to imagine that foreign real rates won’t follow the U.S. if the U.S. growth acceleration helps bring about an upturn in global growth. It’s equally hard to imagine foreign real rates falling further, given their current very low levels,” Søndergaard says. For U.S.-based investors, a weaker dollar would boost international equity returns, which have lagged domestic equities in recent years.

Hear from the investment team.

Don't miss out

Get the Capital Ideas newsletter in your inbox each week


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

Use of this website is intended for U.S. residents only.

American Funds Distributors, Inc., member FINRA.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.