After falling on Monday, the dollar resume its decline today. And Wall Street banks project that the drop will continue. Goldman Sachs, for example, called the dollar 15% overvalued. Morgan Stanley said the dollar will tumble to levels last seen during the Covid-19 pandemic by the middle of next year.
Today’s Hot Button Moves NOW video is: Dollar Down, Yen and Euro Up. Recently, the market has bounced back from the dip after April’s tariff announcements, but there’s something people might be overlooking: if the Fed cuts rates due to an economic slowdown, the dollar will likely weaken. That’s not all bad—it could mean cheaper U.S. exports and lower gas prices globally (tariffs permitting). But it’s surprising how few investors are factoring this in. A while back, I added the Invesco Japan Yen Currency Shares Trust (ETF) to my volatility portfolio, and it’s already up about 10% year-to-date as the yen strengthens against the dollar. Similarly, the Invesco CurrencyShares Euro Trust (FXE) has gained 9.38% this year. (All those performance figures are from before the China tariff deal. Since then the dolor was up on Monday then down on news that the U.S. had signaled to South Korea that it would like a weaker dollar.) Living in Venice, I’ve noticed the euro’s strength firsthand—great for investments, not so great for my daily espresso budget! If you’re looking for a relatively safe play in uncertain times, shifting some dollar-denominated assets into yen or euro ETFs could give you a solid 3-6% return while the dollar softens. The U.S. Dollar Index (DXY) was (before Monday) already down nearly 8%, so diversifying could be a smart move.
Now you need to own more besides U.S. stocks. But what? With my answer, here’s my Special Report: 10 Picks from the Rest of the World
On Monday, March 31, I will sell the Invesco DB U.S. Dollar Index BullishFund ETF (UUP) out of the Perfect 5 ETF Portfolio and replace it with the Invesco CurrencyShares Japanese Yen ETF (FXY). I will leave the portfolio weighting at 25%. The yen ETF is up 5.32% in the last three months as of the close on March 28. It charges a 0.40% expense ratio.
Futures markets are substantially lower as U.S. stocks get ready to open. Futures on the Standard & Poor’s 500 were down 1.64% and NASDAQ futures were off 1.87%. But I still say that Wall Street is in denial about the full economic damage from President Donald Trump’s tariffs.
The European Central Bank raised its main deposit rate by a quarter of one per cent to 4% today. That’s the highest level in the history of the euro. Economists are suggesting–maybe “hoping” would be a better word–that this will be the last interest rate increase in this cycle for the ECB. The latest increase comes as Euro Zone economies flirt with recession
The dollar is likely to get another boost from the Bank of Japan and the European Central Bank this week. On Thursday, the European Central Bank is likely to report its first interest-rate increase in more than a decade. But the increase is likely to be just 25 basis points. That will be a stark reminder of how far behind the Federal Reserve, which raised interest rates 75 basis points in June and is expected to increase rates by another 75 basis points at its July 27 meeting. On Thursday the Bank of Japan is expected to keep its benchmark interest rates at its current low, low, low level.
My one-hundred-and-fifty-fourth YouTube video “Strong Dollar Hits Stocks–3 Things to Do” went up today. The biggest factor driving falling prices in commodities (ahem, oil) is the rising strength of the dollar. Believe it or not, the US economy is faring better than other trading partners. That combined with rising interest rates makes for a stronger dollar. In this video, I provide three picks to address this issue as I continue to expect rate hikes from the Fed.
The Dollar Spot Index (DXY) fell by 0.7% today to the lowest level in more than two years on the biggest drop in almost four weeks.
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