The Weak Dollar Trade Is Coming Back, Thanks to Jerome Powell and a Slowing Economy


A “weak dollar” trade may be returning, thanks to the Jerome Powell and a slowing economy. That would favor favor commodities and global stocks.

The Federal Reserve kept its super-easy monetary policy — low interest rates and asset purchases — in place yesterday. Policymakers pledged to keep the support in place until “substantial further progress has been made toward its maximum employment and price stability goals.”

The other big story is the weakening U.S. economy, which has missed virtually every key data point for the last two months. This morning, for example, the Commerce Department reported that second-quarter gross domestic product (GDP) increased by just 6.5 percent. Forecasters expected 8 percent.

Initial jobless claims have also been higher than anticipated the last two weeks. Durable-goods orders and pending home sales (both for June) recently missed their marks. Last week, leading economic indicators rose 0.7 percent versus the 1 percent consensus estimate.

Weak Dollar Trades

That combination of dovish monetary policy and slowing economic growth is dragging on the U.S. dollar lower against other currencies. The greenback recently hit a 3-1/2 month high, but it peaked on July 21 and has fallen since.

Market Vectors Gold Miner ETF (GDX), daily chart, with 50- and 200-day moving averages.

A weakening dollar can have many implications across the stock market. Commodities often gain because they’re priced in dollars. (If their base currency loses value, they must appreciate to keep their value in global terms.) International stocks also rise because their assets and revenues are in other countries, which also gain in relative terms.

Below is a list Here are some actively traded securities associated with a weak dollar:

  • iShares Silver Trust (SLV): Each share of this exchange-traded fund (ETF) tracks one ounce of silver.
  • iShares MSCI Emerging Markets ETF (EEM): This ETF mostly focuses on Asian markets like China, Hong Kong, Korea and India.
  • Market Vectors Gold Miner ETF (GDX): This ETF tracks a basket of gold producers like Newmont Mining (NEM) and Barrick Gold (GOLD).
  • SPDR Gold Trust (GLD): Each share represents about one-tenth of an ounce of physical gold.
  • Freeport McMoRan (FCX): This copper producer is the largest metal company in the S&P 500.
  • iShares MSCI Brazil ETF (EWZ): This ETF tracks Latin America’s largest economy.

In conclusion, the U.S. dollar stabilized early this year following a big drop in 2020. It may be poised for continued downside, creating potential opportunities in stocks and ETFs that could benefit from the trend.

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