NEW YORK (NYTIMES) - These are rocky times for most investments. But it has been a wonderful stretch for the United States dollar.

You may not have noticed if you have not travelled abroad and exchanged dollars for euros, yen or nearly any other major currency. But many currency traders, S&P 500 company executives and economists certainly have.

The US dollar index, which tracks the dollar against six other important currencies, is hovering at levels it had not reached in 20 years. Since the start of the year, it has gained almost 8 per cent; in the last 12 months, it has risen 14 per cent. Against the Japanese yen, the dollar has risen more than 13 per cent this year alone.

The Federal Reserve's latest moves to tighten monetary conditions are likely to spur the dollar further. Fed policymakers decided on Wednesday (May 4) to raise short-term interest rates half a percentage point and to begin reducing the bonds on its US$9 trillion (S$12.5 trillion) balance sheet in June.

Continuing interest rate increases are likely in the Fed's efforts to bring down inflation. While rising rates can be expected to make stocks, bonds and mortgage rates more volatile, there is an excellent chance they will burnish the dollar.

Fundamentally, a flood of foreign money into US businesses and investments has been driving up the value of the dollar. In fact, a variety of actions that have unsettled the stock and bond markets have worked together to boost the greenback's value against other currencies. These include the Fed rate increases, Russia's war in Ukraine, global sanctions on Russia, soaring commodity prices, China's Covid-19 lockdowns, and Europe's and Japan's economic slowdowns.

Against this backdrop of faltering world economies and geopolitical instability, global demand has risen for relatively safe and increasingly higher-yielding assets like Treasuries.

The US' economy may be in a precarious spot, but compared with other countries, it has recovered well from the pandemic recession, its markets continue to be deep and relatively stable, and the interest rates offered on its government bonds are generous.

The Fed's commitment to fight inflation by raising interest rates can be expected to push up Treasury yields further. That could make them even more attractive in comparison with the lower-yielding bonds of nations like Germany, Japan and China, which have been easing local monetary conditions, not tightening them.

The rising dollar has had significant effects on the global economy. For one thing, it has contributed to the surging US trade deficit, which hit a new high in March. A more valuable currency makes imports cheaper and exports more expensive and less competitive on world markets.

For another, it reduces inflationary pressures in the US.

"America is a nation of consumers, and over half of what Americans consume every year is made abroad," said chief economist David Rosenberg of Rosenberg Research in Toronto.

"As the dollar goes up, the cost of these imported goods goes down. Those declining costs will be showing up in the consumer price index. We have not seen the full brunt of it yet."

Ms Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, said the rising dollar had mitigated some of the inflationary effects in the US of rising commodities, like oil, which are priced in dollars.

The rising dollar is making life difficult for many global corporations. On top of supply chain disruptions and inflation, they need to worry about the effect of the rising dollar on their profits. It is earnings season on Wall Street, and this theme has come up repeatedly.

The dollar is hurting Apple's revenue this quarter, Mr Luca Maestri, the company's chief financial officer, told analysts. "With respect to foreign exchange," he said, "we expect it to be a nearly 300-basis point headwind to our year-over-year growth rate."

That means a negative 3 per cent effect.

In much the same vein, Mr Andre Schulten, chief financial officer for Procter & Gamble, said: "We have seen another step in cost pressures, and foreign exchange rates have moved further against us."

Losses from the dollar are likely "to be a $300 million after-tax headwind to earnings for the fiscal year", he said.

These foreign exchange losses carry over to the stock market. A 2018 study by S&P Dow Jones Indices found that S&P 500 companies with the least dependence on foreign revenue tended to perform well when the dollar was strengthening.

That appears to be happening now. A sub-index of the S&P 500 - the S&P 500 US Revenue Exposure Index, filled with domestic-oriented companies like Berkshire Hathaway, UnitedHealth Group, Home Depot and JPMorgan Chase - has dropped 6.2 per cent this year, as at last Thursday.

That is a stupendous return when you compare the index with its more international counterpart, the S&P 500 Foreign Revenue Exposure Index, which lost 15.7 per cent. The biggest constituents of the foreign index are Apple, Microsoft, Alphabet and Tesla.

While making substantial, direct bets on the dollar is hazardous, it is possible to do so through exchange-traded funds. The Invesco DB US Dollar Index Bullish Fund, for example, has gained 8.1 per cent this year. That compares with losses of 13 per cent for the S&P 500 and 11.1 per cent for the Bloomberg US Aggregate Bond Index, a popular benchmark for bonds.

But before drawing practical conclusions from this comparison, remember that the dollar will not keep rising forever. In fact, it may make more sense to bet on the opposite direction, Ms Shalett suggested.

Putting money into companies with international exposure, and investing in markets that have been pummelled, like Japan, may be a good contrarian move if you have a lot of patience and fortitude, she said.