This week’s inflation print cemented a trend strategists have been anticipating for days now: The US dollar (DX=F) is trending lower.
The greenback continued to move down on Thursday after dropping to a 15-month low on the heels of the latest Consumer Price Index reading. The data showed that consumer prices in June rose at their slowest pace since March 2021.
“US inflation is dropping faster than in Europe and Asia, and other central banks are behind the Fed in terms of raising rates, so the dollar is depreciating relative to the Euro and Asian currencies,” Jay Hatfield, CEO at Infrastructure Capital Management, told Yahoo Finance.
The dollar’s trajectory is a reversal from its strength last year. In September 2022, the Dollar Index (DX-Y), which measures the greenback against a basket of currencies, reached a 20-year high of 114. Today, it’s sitting just south of 100.
It’s worth noting that moments of weakness in the greenback have correlated with a boost in asset prices. US multinationals have an easier time selling their products and services abroad when the dollar is not so expensive.
“A big reason why we’ve been buying stocks so aggressively since last year, despite all the gloom and doom, is because of that weaker dollar,” JC Parets, president and founder of Allstarcharts.com, recently said in a note to investors.
Parets believes stocks will struggle if the dollar strengthens later this summer or in the fall.
“There’s little evidence, however, of a sustainable uptrend in dollars at this point,” said Parets. “In fact, the majority of the data continues to point towards a lower US dollar. I think this could be the catalyst to keep driving stock prices higher. Bitcoin too.”
Another likely winner is commodities, which are denominated in dollars.
Yet, one strategist says “for now the evidence is mixed” when it comes to the greenback’s potential impact on crude prices.
“Oil investors remain focused on the interaction of weak demand growth and output cuts from OPEC and Russia,” Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle, told Yahoo Finance.
“Stronger real interest rates are sapping investor demand and offsetting the dollar,” he added.
West Texas Intermediate (CL=F) and Brent (BZ-F) futures were both up almost 2% on Thursday.
Ines is a senior business reporter at Yahoo Finance. You can follow her on Twitter @ines_ferre
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