The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF
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 it's 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.
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.
- 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.
- Pacer US Export Leaders ETF (NYSE: 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.
