It’s been a torrid few days for sterling.
Earlier this week, the pound plunged to an all-time low against the US dollar, sinking to $1.035 in the wake of the government’s mini budget, which unveiled a raft of unfunded tax cuts designed to give a boost to the UK economy.
However, to say that financial markets baulked at what they heard from Kwasi Kwarteng, Chancellor of the Exchequer, would be a masterclass in understatement.
Earlier this week, the Bank of England (BoE) acted to shore up the UK’s government bond (gilt) market to the tune of £65 billion. This was done to prevent what it described as a “material risk to stability” which it said would lead to “an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”
We’ve asked financial experts for their thoughts about what’s next for the pound and how events will affect consumers and investors alike.
Any views expressed are personal to the individual and do not represent advice on the part of Forbes Advisor.
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Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
The outlook for the pound is still extremely volatile and sterling is unlikely to recover while the government’s unfunded tax plans are still on the table.
Consumers will continue to face severe cost-of-living headwinds due to the higher price of imports brought about by the weak pound. These worries will be compounded by fears about rising housing costs, due to mortgage rates shooting up which will affect not only homeowners, but also tenants as landlords are likely to pass on the rises for their repayments.
This comes at a time when many were already grappling with higher energy bills, so purse-tightening will continue.
Investor confidence in the UK has been damaged by a pile-on of worries about the direction of travel being taken by the new Liz-Truss led administration. Investors were already expecting that a recovery in the UK’s prospects would be dented by interest rate hikes – and that was even before fresh turmoil was unleashed by the mini-budget.
Housing, domestically-focused banks and consumer discretionary stocks are likely to be among the worst hit on the London stock exchange.
Charles White-Thomson, ceo, Saxo UK
Predicting the trajectory of sterling in this fast-changing environment is not for the faint-hearted, but I believe the pound will be weak against the dollar for some time.
I include foreign exchange, or currencies, in my approach to risk management. The first question to ask yourself is which currency makes up the majority of your expenses. Once you know this, ensure the bulk of your reserves are in this currency. This largely rules out currency risk with your biggest expenses.
The remainder of your currency holdings by definition are either investments, speculation or preparation for a particular event such as a holiday.
Risk management extends to your investments. Calculate roughly what percentage is in which currency. Once you have done this, decide whether this is what you want and if not, change it. Always be proactive.
Many UK investors will have made a significant return on their US dollar-denominated investments recently by investing in Apple, for example. It’s OK if this was more by chance than judgment but I would encourage more judgment than chance.
Tom Hopkins, portfolio manager, BRI Wealth Management
We believe the pound may be in for a slow recovery. The economy is fragile, borrowing is high, and the BoE must reassess interest rates.
If the pound remains weak, this will exacerbate the cost-of-living crisis.
Foreign investors could use a weak pound as an opportunity, allowing them to buy up assets that would otherwise cost more. Similarly, UK investors will see the valuations of their assets remain at depressed levels, which could force them to sell if more attractive buying opportunities arise elsewhere.
A weak sterling exerts a drag on UK small and mid-cap companies, not least because of the additional cost pressure on margins that larger corporations tend to be able to absorb more easily.
In addition, smaller businesses tend to be more domestically focused and therefore are less exposed to and diversified across overseas markets.
Victoria Scholar, head of investment, interactive investor
The pound was already on the decline even before the mini budget, but the Chancellor’s economic plan has accelerated losses for the UK’s currency.
Prices have already risen sharply this year with inflation close to double digits. Consumers have seen price rises across the board from food to petrol to energy bills. Sterling’s weakness could add to that upward pricing pressure.
For investors, the slide in sterling and the disorder in bond markets has spread to the equity market, with uncertainty weighing on the FTSE 100, the UK’s stock index of leading companies.
Buying investments in foreign currency such as in US dollars or euros has become more expensive for investors.
The slump in the pound has benefited UK exporting stocks like Diageo and Coca-Cola by making their offerings more competitive. However, housebuilder stocks have struggled.
Chris Beauchamp, chief market analyst, IG Group
It’s unlikely that we have seen the low in sterling, and that means more inflation, while at the same time we can expect further interest rate rises.
It seems the double-bind that consumers have been in for months is only set to get worse.
Meanwhile, the pound’s fall and the associated turmoil at the heart of government has meant UK investors have seen their holdings diminish in value. Admittedly UK exporting firms will get some boost from a weaker pound, but the accompanying rise in inflation will hurt margins.
Ultimately the lack of clarity on what comes next will hurt both investors and consumers.
Victor Trokoudes, co-founder and ceo, Plum
Despite a major intervention by the BoE to purchase gilts, the pound remains vulnerable. As the UK imports more goods than it exports, it’s hit harder by currency weakness than other European countries.
That’s bad news for consumers. Prices are likely to rise as the chances of the pound strengthening will be low if the government remains committed to its agenda and the disconnect between fiscal and monetary policy endures.
Holidaymakers will find their money goes less far abroad, as the pound has weakened against most major currencies.
The BoE’s moves so far this year to raise interest rates haven’t arrested the general decline in the pound. A big interest rate move in November, when the Bank is next due to make an announcement, may not have the desired impact if the fundamentals of the deficit continue to worry investors.
As for investors, they will likely be looking for companies who profit from exports, which might be good news for global FTSE 100 companies such as Diageo and Coca-Cola.
It’s a less promising outlook, however, for broader, more domestic-focused FTSE 250 stocks.
Kasim Zafar, chief investment strategist, EQ Investors
Given the current position with both the Prime Minister and Chancellor sticking to their plan, sterling weakness is set to continue.
UK inflation will remain high, if not head higher, not because of additional consumer spending, but from rising prices of foreign goods translated into sterling. Companies can’t afford to absorb this much sterling weakness in their margins – they will have to raise their selling prices.
The most obvious course of action for the BoE, therefore, will be to significantly raise interest rates. The potential for a deep and severe recession in the UK has grown substantially.
There is a possible path to recovery. If the BoE raises interest rates aggressively, if lower taxes boost growth and attract investment, if the cost of energy subsidies turns out to be lower than expected, and if US inflation is brought under control (allowing the US Federal Reserve to ease off tightening monetary policy), then sterling may well find strength.
With each of these looking improbable in the short term, the best chance for sterling strength in the short term probably comes from a Conservative party revolt that could force a change in government policy.
Frédérique Carrier, head of investment strategy, RBC Wealth Management British Isles
We have held a negative view on the pound throughout 2022 and continue to remain cautious.
The pound is vulnerable given the country’s yawning fiscal and current account deficits, while the US dollar’s relentless strength has been a constant pressure on the pound/dollar currency pair. We are sceptical that the BoE’s policy intervention in isolation can support a material recovery in the currency.
We downgraded UK equities to ‘underweight’ in September, as we were concerned the government’s policies were not commensurate with the challenges facing the economy.
We maintain our strong preference for internationally orientated companies and remain cautious on UK domestics.
Matthew Yeates, deputy chief investment officer, 7IM
The depreciation of the pound will likely be a negative for consumers, as it increases prices for goods purchased from abroad, adding further fuel to the inflation fire.
For globally diversified investors, the pound’s depreciation is not all bad, as investors can benefit from a higher price (in sterling) for their foreign assets.
This has helped cushion some losses this year, in a world where relatively few financial assets have been appreciating in price.
Shaun McDade, portfolio manager, Ravenscroft
The outlook for consumers remains bleak as the price of imported goods – and overseas holidays – will remain expensive.
On a more positive note, last week’s mini-budget has eased some of the pain caused by pressures in the wholesale energy market, as well as delivering some small tax cuts. We can also expect to see inflation rates moderate from here.
Investors in UK plc are insulated to some extent by the high proportion of earnings derived from overseas. Given that an already cheap market has become even cheaper from a foreign investors’ perspective, it’s likely we’ll see UK companies become the target of increased M&A activity.
Alastair George, chief investment strategist, Edison Group
Where a depreciating pound will really hurt is in the repricing of interest rates if the BoE raises rates more quickly, as markets now expect.
Many consumers have suffered sharply rising energy and food costs and now mortgage and credit card rates will be moving higher, risking a meaningful slowdown in the housing market and further eroding consumer confidence.
Investors will need to balance risk against opportunity. On the risk ledger, the political situation is highly uncertain, with a lack of support for the government growth plan and its unfunded tax cuts. The incoming Prime Minister’s first act seems to have been to rock the boat rather than steady the ship.
We do not think the pound will stage a meaningful recovery until investors are convinced that the apparent conflict between fiscal and monetary policy has been resolved.
In the meantime, investors should focus on UK equities which have been unfairly caught up in the market volatility, many of which are high quality companies operating either with significant, or the majority, of their operations overseas. We cannot exclude the possibility of opportunistic takeovers by foreign buyers.
Domestically focused UK companies are in the crosshairs of a likely significant economic slowdown in the UK following the sharp increase in interest rates now forecast, and we would be on alert for earnings downgrades.
Fiona Cincotta, senior financial markets analyst, City Index
The pound/dollar currency pair is now holding steady as investors continue digesting the latest developments in the post-mini-budget saga. The pound has recovered from its record low and is finding some support from the BoE riding to the rescue.
The recent action by the central bank has calmed a jittery market, but doesn’t address the underlying cause of the problem. Instead, it raises more questions over incoherent policy, which leaves the pound looking vulnerable.
As far as the consumer is concerned the outlook is bleak, with aggressive rate hikes on the cards which are set to push interest rates and mortgage repayments higher, with disposable income is set to fall significantly. This feels like a ticking time bomb with retailers bracing for a hard hit and house prices expected to collapse quickly.
Dan Ashmore, analyst, Invezz
The UK current account deficit, which is a log of exports minus imports, was already at record levels before the latest plunge in the pound.
The energy crisis – the UK is reliant on energy imports – had already been putting the balance of payments under pressure. This latest blow will do nothing to quell the sell-off in the pound.
The fallout from the pound’s plunge against the dollar is likely to hit the UK stock market. While exports to the US will be cheaper for US consumers and hence benefit UK stocks, the flipside is also true regarding imports being more expensive for British companies.
It is really the reaction of the BoE that will trigger the stock market one way or another. Some analysts believe interest rates will now be hiked more aggressively than previously expected to protect the pound.
Should this transpire, it would suck liquidity out of the market, further raise discount rates used to value the future cashflows of companies, and ultimately negatively impact the stock market.
No matter which way you look, we live in a ‘dollarised’ world. As the music stops on the historic 10-year financial market bull run, the only currency you want to hold is the dollar.
I’m not changing my position now, even as pound/dollar parity nears. Europe is in a worse place economically than the US, and the winter ahead will be very tough for all of us on this side of the pond.
Graham Bentley, cio, Avellemy
Given the BoE will not lose its focus on reducing inflation, sterling is unlikely to get any stronger without a dollar ‘collapse’, or a politically embarrassing government U-turn, potentially damaging both the prime minister and chancellor irrevocably.
The pound has fallen 25% against the very strong dollar this year, and short of a major political upheaval, expect the pound to keep testing its all-time low. Although the pound has been significantly less weak versus the euro and the Japanese yen, without more positive news imported goods will become increasingly expensive, adding upward pressure on inflation.
Overseas holidays for 2023 are already having their prices revised upwards for consumers, but investors in funds buying foreign shares will have seen their returns significantly enhanced as dollars, euros, etc will buy more pounds.
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Analysts at JP Morgan have forceasted that the GBP/USD is forecast to fall to 1.18 in June 2023, to 1.16 in September 2023 and to 1.15 in December 2023.Why is pound falling against dollar? ›
LONDON — The British pound on Thursday sank sharply against the U.S. dollar after the U.K.'s central bank said it expected a recession to last for all of 2023 and the first half of 2024. Sterling was trading at $1.1165 at 2 p.m. London time, its lowest level since Oct. 21.Why is the pound stronger than the dollar? ›
The British pound (GBP) has enjoyed a nominal premium to the U.S. dollar (USD) for many years, owing both to historical convention and the Bank of England's willingness to intervene in times of crisis to defend the pound.Why is the pound getting stronger? ›
“There was a big re-rating of growth expectations around Europe, and that impacted the UK,” Pesole said. The euro has also been lifted by these dynamics, rising 2.3% against the US dollar in 2023. The pound's rally has been sharper in large part because its 2022 declines were more severe, according to Pesole.What will the Pound to dollar be in 2023? ›
Average exchange rate in 2023: 1.2217 USD.How high will the Pound go against the dollar? ›
Predictions and Pound to Dollar exchange rate forecasts from market pricing sources, investment banks and technical analysts. In one month the Pound / Dollar exchange rate could be at 1.2451 according to market pricing as of 21/04/2023.Will pound get stronger 2023? ›
Pound Sterling Predicted to Experience Tough 2023, but 2024 has Silver Linings says BofA. 2023 will be a difficult year for the British Pound shows new research from Bank of America, although 2024 will potentially see a more sustainable rally.What is the best performing currency in 2023? ›
LONDON — The British pound is the best performing G-10 (Group of Ten) currency of 2023, and some strategists believe the pound's rally can continue over the medium term.What is the strongest the pound has ever been against the Dollar? ›
Highest: 1.2522 USD on 13 Apr 2023. Average: 1.2126 USD over this period. Lowest: 1.1172 USD on 03 Nov 2022.What is the strongest currency in the world? ›
The highest currency in the world is none other than Kuwaiti Dinar or KWD. Initially, one Kuwaiti dinar was worth one pound sterling when the Kuwaiti dinar was introduced in 1960. The currency code for Dinars is KWD. The most popular Kuwait Dinar exchange rate is the INR to KWD rate.
The 'Kuwaiti Dinar' is the highest currency in the world in 2023. In spite of the US dollar being the world's most traded and strongest currency, it is not the most expensive currency. Read on to know about the most valuable currencies in the world in 2023.Who benefits from a strong Dollar? ›
A strong dollar makes imported goods cheaper for US consumers.Who benefits from the pound falling? ›
In Summary A falling Pound makes: UK imports become more expensive and UK exports more competitive. A falling Pound tends to cause higher inflation, but could cause a boost to short-term economic growth through higher exports. A falling Pound might improve the current account as it boosts exports relative to imports.What is the weakest the pound has ever been? ›
In 1940, the British government devalued the Pound to around $4 for every £1. Two further devaluations occurred in the 1960s before the Pound became a freely floating currency in 1971.Is the pound expected to rise? ›
The British Pound is expected to trade at 1.18 by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 1.10 in 12 months time.What will the US dollar be worth in 2050? ›
|Year||Dollar Value||Inflation Rate|
#1: Iranian Rial
The Iranian Rial is one of the weakest currencies in the world. International sanctions, coupled with economic mismanagement and corruption, have significantly impacted the Iranian economy. The currency has experienced a continuous decline, with inflation rates remaining high.
There are a variety of factors that cause the U.S. dollar to rise, but the primary factor that it boils down to is demand for the dollar. If the demand for the dollar increases then so does its value. Conversely, if the demand decreases, so does the value.Should I buy pounds now or wait? ›
Based on the GBP/USD rate over the past 5 years, now is not a great time to buy US Dollars with British Pounds. That's because the Pound to Dollar exchange rate is currently closer to the bottom-end of the historical trading range. Buyers of US Dollars want a high GBP/USD exchange rate.What should I invest in if dollar collapses? ›
Investing in U.S. exporters, tangible assets (foreigners who buy U.S. real estate or commodities), and appreciating currencies or stock markets provide the basis for profiting from the falling U.S. dollar.
23 report, said the currency will likely weaken in 2023, which may result in Canadian dollar strength in later quarters. Analysts at several major Canadian banks predict the loonie will be worth almost 77 cents US by the end of 2023, while it's currently closer to 75 cents US.Will US dollar get stronger in 2023? ›
The dollar index is up over 1% for 2023 largely because of stronger-than-expected U.S. economic data and a corresponding change to expectations of interest rate hikes by the U.S. central bank.Why is the pound falling february 2023? ›
It was projected to fall over the course of 2023 following declines in energy prices and as global demand weakened and supply chain pressures eased. 3: In the euro area, GDP growth had slowed in recent quarters as real incomes had been squeezed by higher energy and food prices.Why pound is falling in 2023? ›
However, according to the latest Bank of England Monetary Policy Report, inflation 'is expected to fall significantly in Q2 2023' due to the extension of the Energy Price Guarantee (EPG) announced in the recent budget and the fall in wholesale energy prices.Is the US dollar losing value 2023? ›
After reaching parity with the euro in 2022, the U.S. dollar has weakened modestly in 2023. The dollar has also lost ground against other currencies. Changes in the dollar's value on currency markets can affect results for U.S. investors who put money to work in global capital markets.What is the safest currency in the world? ›
The Swiss franc is the official legal tender of Switzerland and its tiny neighbor Liechtenstein, and the currency is seen as a safe haven due to Switzerland's political stability. The Swiss franc was introduced in 1850 and was later briefly pegged to the euro before moving to a free-float.What happens if US dollar collapses? ›
(1) the cost to import goods will skyrocket because foreign companies will no longer want dollars; (2) our government will lose its ability to borrow at its current levels – forcing it to raise taxes or print money to cover its shortfalls; (3) inflation will be at levels we have never seen because of higher import- ...Why is pound getting weaker? ›
Why has the pound fallen to a record low? The financial markets have effectively taken a look at the chancellor's new economic plan and decided they don't like it. International currency traders have been selling off sterling in favour of the traditionally more robust US dollar.Is it better to buy dollars in the US or UK? ›
It could be more beneficial to buy your dollars in the UK rather than when when you arrive in the US. This is because the pound-to-dollar exchange rate in the UK is can be better than some of the rates offered by providers in America.Has the pound ever been worth 2 dollars? ›
On 18 April 2007, sterling hit a 15-year high against the dollar, with the pound worth $2 for the first time since 1992.
- Spain. gatsi/Adobe. ...
- Peru. Pakhnyushchyy/Adobe. ...
- Bangladesh. giusparta/Adobe. ...
- South Africa. Thomas/Adobe. ...
- Vietnam. Hanoi Photography/Adobe. ...
- Mexico. JoseLuis/Adobe. ...
- Hungary. Noppasinw/Adobe. ...
- Egypt. AlexAnton/Adobe.
Underlying all of it is the presumption that without its “exorbitant privilege” of reserve currency status, the dollar will sink, US interest rates will soar and market mayhem will ensue.Where does the American dollar go the furthest? ›
Home to Machu Picchu and the Amazon jungle, Peru is easily one of the most bucket-list destinations in the world. It's also known for being budget-friendly and hosting tourists, with about 3.8 Peruvian soles equating to one USD.Why is the US dollar so strong? ›
The dollar's value comes from the US' position as a critical global economic power and the country's political and economic stability. While it may hold less value than such currencies as the Swiss franc or the British pound, the dollar's global use makes it a more commercially viable currency.What is the US dollar backed by? ›
Today, like the currency of most nations, the dollar is fiat money, unbacked by any physical asset. A holder of a federal reserve note has no right to demand an asset such as gold or silver from the government in exchange for a note.Is the dollar losing value? ›
We generally look at indices that compare the dollar's value to the values of a broad range of currencies, weighted according to the value of their trade with the U.S. By most measures the dollar has fallen by about 8% to 10% in both real and nominal terms since late last year.What happens if the dollar gets too strong? ›
A strong dollar makes it more difficult to service their debt for those who have borrowed in dollars but whose receipts are in another currency. This is a particular problem for governments and companies in emerging economies because most of their borrowing is in dollars.Who hurts from a strong dollar? ›
Disadvantages of a Strong Dollar
Business travelers and foreigners living in the US but holding on to foreign-denominated bank accounts, or who are paid incomes in their home currency, will be hurt and their cost of living increased.
Advantages and disadvantages of a weak dollar
A weak dollar can be a good thing for U.S. firms who want to sell goods in foreign markets. Because foreign products and services become relatively more expensive, U.S. products and services become more competitive overseas.
Higher prices. A fall in the value of the pound will increase the price of goods and services imported into the UK from overseas. That's because when the pound is weak against the dollar or euro, for example, it costs more for companies in the UK to buy things such as food, raw materials or parts from abroad.
Most monthly economic data from the United Kingdom comes out between 2 a.m. and 4:30 a.m. Eastern Time in the United States, making this a good time for trading.How do you profit from pound falling? ›
The price of GBP/USD is 1.22075 (so it costs $1.22 to buy £1) and you think GBP is going to decrease in value against USD – so you open a short position. If the price quote drops below 1.22075 by more than the spread, you will make a profit. You can short currency pairs using derivatives such as spread bets and CFDs.Why was the dollar so strong in 1985? ›
1980–1985. There was a twenty-six percent appreciation of the dollar between 1980 and 1984 as the result of a combination of tight monetary policy during the 1980-82 period under Federal Reserve Chairman Paul Volcker and expansionary fiscal policy associated with Ronald Reagan's administration during the 1982-84 period ...How far could pound fall? ›
According to Monex, the currency pair could rise to 1.12 in six months – by 31 March 2023 – but fall again to 1.10 in a year's time. Economics data provider TradingEconomics forecast that GBP/EUR could be priced at 1.16207 by the end of this quarter and at 1.15227 in one year's time.What is the 2nd weakest currency? ›
- #1: Iranian Rial (IRR): [1 USD = 42, 250 IRR] ...
- #2: Vietnamese Dong (VND): [1 USD = 22,650 VND] ...
- #3: Indonesian Rupiah (IDR): [1 USD = 14,365.5 IDR] ...
- #4: Laotian Kip (LAK): [1 USD = 11, 345 LAK] ...
- #5: Sierra Leonean Leone (SLL): [1 USD = 11,330 SLL]
Analysts at JP Morgan have forceasted that the GBP/USD is forecast to fall to 1.18 in June 2023, to 1.16 in September 2023 and to 1.15 in December 2023.Will the British pound get stronger in 2023? ›
LONDON — The British pound is the best performing G-10 (Group of Ten) currency of 2023, and some strategists believe the pound's rally can continue over the medium term.Will Pound get stronger in 2023? ›
In a year-ahead overview, Bank of America said it expects the Euro-Pound exchange rate to trade at 0.89 by the end of the first quarter 2023, 0.89 by the end of the second quarter, 0.90 by the end of the third quarter and 0.91 by year-end. This translates into a GBP/EUR profile of 1.12, 1.12, 1.11 and 1.10.Will the UK Pound get stronger in 2023? ›
According to Trading Economics global macro models and analysts' expectations. the British Pound is forecast to trade at 1.18 by the end of Q1 2023. Looking forward, the website estimates GBP/USD to trade at 1.11 in 12 months' time. Another AI-based website, LongForecast, estimates GBP/USD to close in 2023 around 1.13.Will the Pound rise against the dollar 2023? ›
GBP/USD is forecast to reach 1.20 in March 2023, before falling to 1.18 in June 2023, to 1.16 in September 2023 and to 1.15 in December 2023. EUR/USD is predicted to reach 1.10 in March 2023, before declining to 1.08 September 2023 and holding at 1.08 in December 2023.
The dollar index is up over 1% for 2023 largely because of stronger-than-expected U.S. economic data and a corresponding change to expectations of interest rate hikes by the U.S. central bank.What year was the Pound strongest? ›
Historically, the British Pound reached an all time high of 2.86 in December of 1957. British Pound - data, forecasts, historical chart - was last updated on April of 2023.What happens if the pound is strong? ›
A higher pound actually makes us less competitive, which means there is lower growth in exports and less investment. That results in lower living standards and lower productivity gains.What time of day is the pound strongest? ›
British Pound and Equity Exchange Hours
The Bank of England (BOE) issues its rate decisions at 7 a.m., and the European Central Bank (ECB) follows at 7:45 a.m., leading to high activity.
Even if the economy does start to grow again towards the end of next year, it's unlikely to do so particularly quickly, given lingering pessimism and shrinking wages. All of this means that there is likely to be a low maximum value that GBP can reach in 2023.What is the strongest the pound has ever been against the dollar? ›
Highest: 1.2522 USD on 13 Apr 2023. Average: 1.2126 USD over this period. Lowest: 1.1172 USD on 03 Nov 2022.What happens if the US dollar collapses? ›
(1) the cost to import goods will skyrocket because foreign companies will no longer want dollars; (2) our government will lose its ability to borrow at its current levels – forcing it to raise taxes or print money to cover its shortfalls; (3) inflation will be at levels we have never seen because of higher import- ...What happens if the dollar keeps getting stronger? ›
Besides hurting earnings, a super-strong dollar can also hurt prices of US stocks and bonds by making them more expensive for big non-US institutional investors. Faced with higher prices, they may opt to invest their money elsewhere, dragging US markets downward in the process.