The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, dropped below the key 100 mark on Thursday, plunging to its weakest levels since April 2022, as softer-than-expected consumer and producer inflation encouraged traders to scale back bets of more than one rate hike by the Federal Reserve this year.
Consumer price inflation fell to 3% year on year in June, the slowest rate since March 2021, a full percentage point lower than in May and well below the predicted 3.1%. In June, producer inflation fell to a negligible 0.1% year-on-year, the lowest reading since August 2020 and considerably below the predicted 0.4%.
The dollar came under pressure following a steep decline in U.S. Treasury yields, with the policy-sensitive two-year Note yield falling 20 basis points to 4.66% in the previous two sessions.
The value of the dollar, as gauged by the DXY index, has dropped 4% since the beginning of the year and 13% from its all-time high reached in September 2022. The dollar has suffered even greater losses versus emerging-market currencies, such as the Mexican peso (MXN) and the Chilean peso (CLP), which are up 20% and 18%, respectively, since their lows in 2022.
Chart: US Dollar Index Falls To 15-Month Lows
Dollar Weakens: What Are The Effects? For U.S. exporters: Products made in the U.S. become more competitive on international markets when the dollar weakens. As a result, American exporters may see an increase in demand and sales, potentially improving their profits.
For multinational corporations: Multinational corporations headquartered in the U.S. typically get a sizable amount of their revenue from outside of the country. A weaker dollar can improve the value of these earnings when they are repatriated (converted back to U.S. currency).
For emerging markets: A weaker dollar might make it less expensive for emerging-market countries to repay or service their debt in U.S. dollars, which makes a high portion of their overall debt. It also encourages investors to seek higher returns in emerging markets, leading to increased capital inflows and potentially boosting these economies.
For inflation and purchasing power: It’s important to note that a weaker dollar can have also downsides, such as potential inflationary pressures and decreased purchasing power for U.S. consumers and companies importing foreign goods. Read Now: Rate Hike Speculation Cools As US Producer Inflation Softens, Economist Predicts S&P 500 To Reach 5,000 By Year End
5 Stocks Stand To Gain From A Weaker U.S. Dollar Procter & Gamble Co. PG: Procter & Gamble has a global network that includes operations and sales in over 180 countries. PG generates the majority of its revenue outside of North America.
McDonald’s Corp MCD: McDonald’s runs and franchises restaurants in more than 100 countries, with a sizable amount of its earnings coming from outside the U.S.
Caterpillar Inc. CAT: Caterpillar, a leading maker of construction and mining equipment, generates 53% of its revenues outside of North America.
Exxon Mobil Corp. XOM: Exxon is the largest oil company in U.S. Because oil is traded in U.S. dollars on international markets, a weakening dollar makes oil barrels more affordable to buyers.
Newmont Corporation NEM: Newmont is a major gold miner whose business is heavily reliant on precious metals performance. A weakening dollar makes gold more appealing, driving up the price of the metal. 5 ETFs Set To Rally From A Falling Dollar Pacer US Export Leaders ETF PEXL: PEXL offers exposure to U.S. companies that rank within the top 10% in the country in terms of foreign sales, providing a unique focus on firms benefiting from a strong international presence.
IShares J.P. Morgan USD Emerging Market Bond ETF EMB: EMB offers exposure to U.S. dollar-denominated government bonds issued by emerging market countries, and tracks the J.P. Morgan EMBI Global Core Index.
VanEck Gold Miners ETF GDX: GDX provides exposure to publicly traded companies worldwide involved primarily in gold mining.
Energy Select Sector SPDR Fund XLE: This ETF offers exposure to companies in the oil, gas, consumable fuel, and energy equipment and services industries, providing a means to invest in energy beyond just oil.
Invesco CurrecyShares Euro Currency Trust FXE: The fund seeks to track the performance of the euro, the official currency of 19 of the 27 member countries of the European Union. Read Now: The Rally Is Broadening
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