NEW YORK (TheStreet) -- The euro is moving closer to parity with the dollar as the U.S. and European economies diverge, adversely affecting companies that are sensitive to a strong dollar.
Commodity sectors, linked to gold and oil, have declined as the dollar has risen. Commodities are priced in dollar terms and become less expensive as the dollar index increases. Market Vectors Gold Miners ETF (GDX) and Energy Select Sector SPDR (XLE) have each declined over 10% since June and could see continued selling as the dollar further increases.
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Meanwhile, Utilities Select Sector SPDR (XLU) has lagged the SPDR S&P 500 (SPY) since May, falling close to 9%, as the expectation for higher U.S. interest rates has weighed on company share prices. Utility stocks are known for their large dividend payouts as they tend to be more stable, slow-growth companies. Similar to how bonds react when interest rates rise, utility stocks fall as their dividend yields become less attractive in the face of higher rates.
Comments by European Central Bank President Mario Draghi on Thursday showed that policymakers are willing to do whatever it takes to return the euro area economy to growth. In contrast, the Federal Reserve meeting last week proved that the central bank would likely begin raising short term rates by summer of next year. As statements from the two central banks have differed in tone, the dollar has been pushed higher, hurting interest rate sensitive sectors.