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Stocks and Currencies

Typically, if a country’s currency is going up in value relative to other currencies, there’s downward pressure on the value of stocks in that country (and vice versa). One reason for this is that if the value of the US dollar, for example, rises, it becomes more expensive for international investors to buy US stocks, and thereby decreases demand for them (which exerts downward pressure on their value). Another is that it becomes more difficult for US companies to sell goods overseas when the dollar is more valuable. Goods produced in the US will be, relatively, more expensive for a European if the euro has declined in value versus the dollar – and so US companies tend to sell fewer goods. Additionally, profits made overseas are worth less when translated back to US dollars – i.e. a €100 profit is worth less in dollars, the more the dollar increases in value.

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