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Investment Watch

July 07, 1996

Pray for an even stronger dollar? The buck jumped in value on Friday against key currencies, reaching 110.77 Japanese yen, a 2 1/2-year high. The dollar's increasing muscle stems from the healthier-than-expected U.S. economy, which is luring capital here. The good news is that a stronger dollar is deflationary--reducing import prices--and may be at least a modest drag on interest rates by keeping foreign money flowing in. But the downside is also significant: Every uptick in the dollar potentially reduces U.S. companies' foreign profits and makes it tougher to compete on price with foreign goods. A rising dollar also automatically depresses U.S. investors' foreign stock holdings.

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