Like the economic struggles, has been an approximate month for the US dollar. According to the section, our currency may be on its way to the weakest month in almost a decade Wall Street Journal. Two things have caused the recent decline: Our coronavirus outbreak and low interest rates of the Federal Reserve.
As a result, investors have sold the US dollar and bought other currencies in places with lower levels of infection. While a weak U.S. dollar can cost you money when you travel abroad, Diner reports it may be a good thing for your investment portfolio, that’s why.
How a weak dollar affects U.S. equities
As the US dollar shrinks, American products become less expensive abroad. This creates a more competitive price for companies that sell products elsewhere. For example, when an American company creates a $ 2 product and sells it for $ 1.85 in another country, the cheaper price generates more demand.
According to Money, some of the companies that will benefit from it may already be part of your portfolio, such as those represented in the S&P 500. The weak dollar may have the biggest impact on US companies doing business abroad. such as technology companies, as opposed to companies focused on domestic businesses, such as service companies or telecommunications.
How a weak dollar affects foreign stocks
There is better news: the weak US dollar may also have a positive impact on foreign investment in the portfolio. When you buy foreign investment, you invest in two things: foreign stocks i the foreign currency.
When you have foreign stocks and the US dollar weakens get a boost from the return of ownership of the foreign currency. This means that you will make a profit when the currency is translated back into US dollars.
What to expect in the future
Unfortunately, no one can predict how the US dollar will turn out in the future. But if we continue to fight coronavirus infections – and government stimulus continues – experts say the US dollar may remain weak for a while.