US Dollar Reaches Parity With Euro: Why A Strong Dollar Is Bad News For These Stocks

The Invesco DB US Dollar Index Bullish Fund UUP traded higher by 0.1% on Wednesday as the value of the dollar has climbed in-line with the value of the euro for the first time in nearly 20 years.

Inflation Is King: Wednesday morning's news that the consumer price index (CPI) increased 9.1% from a year ago in June sent both the SPDR S&P 500 ETF Trust SPY and the Vanguard European Stock Index Fund ETF VGK tumbling, but the U.S. dollar remained unscathed, rising to a 20-year high against a basket of international currencies.

Related Link: US Economy Adds 372,000 Jobs In June, Another 0.75% Fed Rate Hike 'Almost A Certainty'

While inflation has driven down the purchasing power of the dollar for many Americans in 2022, the dollar remains the gold standard among international currencies in a highly inflationary environment. The UUP fund is now up 12.5% year-to-date.

Not only is the dollar outperforming other currencies, it is also leaving common inflation hedged Bitcoin BTC/USD and gold in the dust this year. The SPDR Gold Trust GLD is down 5.6% year-to-date, while the price of Bitcoin has plummeted 59%.

How To Play It: For stock investors, DataTrek Research co-founder Nicholas Colas said Wednesday the strong dollar is an issue worth watching heading into second-quarter earnings season.

"The recent runup in the dollar is a challenge for both emerging market equities and economies as well as U.S. equity sectors with high levels of offshore revenues. Tech leads that list, at 58% offshore sales," Colas said.

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If Colas is correct, investors should potentially avoid the iShares MSCI Emerging Markets ETF EEM and the Technology Select Sector SPDR Fund XLK as companies report second-quarter earnings in the coming weeks. Benzinga's Take: Tightening by the Federal Reserve in 2022 has made the dollar more attractive for investors relative to the Euro. U.S. interest rates are expected to approach 3% bhy the end of the year, while they remain near zero in Europe as a potential energy crisis looms.