A gradually strengthening dollar is good for the stock market as a whole, and will outweigh the initial impact on earnings, says David Bianco, the head of US equity strategy for Deutsche Bank.
As the dollar rises it lowers the cost of imports, holding down inflation. That, in turn, makes it easier for the Federal Reserve to keep interest rates low.
Because investors love the stability that low interest rates and tame inflation bring, they will be more willing to own stocks. That will push up stock prices even if corporate earnings don’t increase, Bianco says.
Deutsche Bank analysts forecast that the dollar will strengthen to $1.20 against the euro by the end of the year, or about 7 percent, from its current level of $1.29. By the end of next year, they see the dollar strengthening to $1.15 against the euro.
‘‘I’d welcome a stronger dollar,’’ says Bianco. ‘‘It contains the risk of any surge in interest rates, or inflation risk.’’