Investors are betting a weaker U.S. dollar will further boost a rally that has seen stocks, emerging market currencies and other risky assets soar in recent weeks.
At the same time, the Fed’s pledge to keep U.S. rates near zero for the foreseeable future and potentially cap yields has diminished the dollar’s attractiveness to income-seeking investors and raised the allure of higher-yielding currencies.
Because of the dollar’s central role in the global financial system, its fluctuations tend to have widespread repercussions. A weaker dollar also tends to be a tailwind for oil and other raw materials, which are denominated in dollars and become more affordable to foreign buyers when the U.S. currency declines. The S&P/Goldman Sachs Commodity Index .SPGSCI has rallied about 45% over the last 30 days.
An investor selling dollars and buying the Brazilian real, for instance, would have earned 17.4% over the last month accounting for the difference in yield and the real’s swift rise from recent lows, according to Cambridge Global Payments data through Monday. The Mexican peso has returned nearly 10% in the same period, and the Russian ruble 7.7%.
At the same time, few are willing to completely turn their back on haven assets such as the dollar with the trajectory of the coronavirus pandemic still uncertain and the global economy at its weakest in decades.
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