Tuesday, July 28, 2020 9:34:31 AM
An accelerating decline in the U.S. dollar is reverberating around the world
https://www.reuters.com/article/us-health-coronavirus-dollar-analysis/king-dollars-decline-ripples-across-the-globe-idUSKCN24T1G5
Further dollar weakness would likely be an unwelcome development for economies such as Europe and Japan, as their own rising currencies threaten to weigh on growth and efforts to spark inflation.
The dollar is down around 3% year-to-date, after rising for each of the last two years. The greenback slid nearly 10% in 2017.
A weaker dollar makes U.S. exports more competitive abroad and helps U.S. multinational companies by making it cheaper for them to convert profits back into their home currency. That’s potentially good news for a rally in U.S. stocks that has slowed in recent weeks after coming within distance of all-time highs.
A 10% fall in the value of the dollar against a basket of trade-weighted currencies would increase 2020 earnings per share by about 3%, Goldman said. Goldman analysts expect the dollar to fall another 5% over the next 12 months.
Other assets are already benefiting from the dollar’s drop. Gold, which like many commodities is priced in the U.S. currency and becomes more affordable to foreign buyers when the dollar falls, stands near its historic high, part of a rally that has driven the S&P/Goldman Sachs Commodity Index .SPGSCI 34% higher since late March, as of Monday.
Developing countries are also likely to cheer a weaker dollar as it makes it cheaper for them to service debt denominated in the U.S. currency.
https://www.reuters.com/article/us-health-coronavirus-dollar-analysis/king-dollars-decline-ripples-across-the-globe-idUSKCN24T1G5
Further dollar weakness would likely be an unwelcome development for economies such as Europe and Japan, as their own rising currencies threaten to weigh on growth and efforts to spark inflation.
The dollar is down around 3% year-to-date, after rising for each of the last two years. The greenback slid nearly 10% in 2017.
A weaker dollar makes U.S. exports more competitive abroad and helps U.S. multinational companies by making it cheaper for them to convert profits back into their home currency. That’s potentially good news for a rally in U.S. stocks that has slowed in recent weeks after coming within distance of all-time highs.
A 10% fall in the value of the dollar against a basket of trade-weighted currencies would increase 2020 earnings per share by about 3%, Goldman said. Goldman analysts expect the dollar to fall another 5% over the next 12 months.
Other assets are already benefiting from the dollar’s drop. Gold, which like many commodities is priced in the U.S. currency and becomes more affordable to foreign buyers when the dollar falls, stands near its historic high, part of a rally that has driven the S&P/Goldman Sachs Commodity Index .SPGSCI 34% higher since late March, as of Monday.
Developing countries are also likely to cheer a weaker dollar as it makes it cheaper for them to service debt denominated in the U.S. currency.
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