The stronger dollar has important asset allocation ramifications. Commodities (priced in dollars) which broadly matched stocks for much of last year are down for the year and have not participated in the rally over the last six weeks. We started reducing weightings to both Europe and commodities in early February. We now have no direct exposure to commodities in our Growth & Income portfolios, have cut our direct exposure in the Growth portfolios in half and have introduced a position in the trade weighted dollar. Regarding Europe, while it represents about 70% of the international benchmark we have only about one-third of our international exposure there. When the US is outperforming world markets, a globally diversified portfolio of stocks and commodities will typically underperform the S&P 500, and that is happening. We will consider whether we need to reduce Europe further as history shows that Europe rarely outperforms the US when the dollar is strengthening against the euro.

David Fuller's view The US dollar has been strong against the euro and sterling (both inverted on the charts shown). However we maintain that this is more a story of euro and sterling weakness than dollar strength. The US dollar has been firm against the Swiss franc, albeit to a lesser extent, and more recently it has begun to strengthen against the yen.

Beyond Europe and Japan, the story of US dollar strength is questionable against Asian, emerging market and resources currencies generally. You can see this with the dollar declining against the Indian rupee and Mexican peso. The greenback remains within a somewhat choppy downtrend against the Canadian dollar and is currently rangebound against the Australian dollar (inverted) following a long period of strength by the antipodean currency. (See Chart Library for many more cross rates and also currency indices.)

In conclusion on currencies, the US dollar's picture is decidedly mixed. Even against the weak euro and sterling I would be cautious about extrapolating the greenback's strength. While momentum selling may push the euro and sterling a little lower, practically everyone is bearish. I regard this as position talking, and therefore a contrary indicator for the medium term. Also, the dollar is no longer deeply oversold so it could be vulnerable to any blip in the US economic recovery. My current, personal preference in forex is to short the yen, as previously mentioned.

Regarding commodities, US dollar strength, where it is occurring, is a headwind because most resources are quoted in dollars. This is particularly true for gold and silver, which are increasingly regarded as a store of wealth in a fiat currency world. However, the primary drivers of commodity prices are supply and demand, and the US is no longer the main consumer of industrial metals, which remain generally strong within somewhat volatile ranging uptrends, as you can see from these weekly charts of LME 3rd month prices in USD: aluminium, copper, lead, nickel, tin and zinc.

For me, the most important commentary in this latest issue of The Weekly View is their section on dividend growers and the importance of dividends compounded in portfolios. The income needs of post WW2 baby boomers are not confined solely to the USA. Companies able to grow their dividends tend to be better market performers and are certainly of interest to Fullermoney. Any reports on this subject, listing stocks that qualify, are welcome and would be shared with the Collective, where possible.