The Buck Versus Stocks
Unlike stocks, the U.S. dollar has not had a strong November, and the Federal Reserve is at least partially to blame.
Here’s a quick recap of how we got here: The Fed hiked interest rates aggressively to combat pandemic-era high inflation. For the past two FOMC meetings, the rates have remained unchanged, and many market participants expect cuts next year. Historically, when interest rates fall, stocks and bonds perform better, so investors are gearing up to put money back into those securities. And that’s weighing on the dollar a bit.
November Blues
November has been the worst month of the year for the greenback. The U.S. Dollar Index, a gauge for the dollar’s strength against several foreign currencies, is down more than 3% since the start of the month.
What Rate Cuts Could Do
Many investors believe the Fed will begin cutting rates in the second half of 2024. That could further diminish the dollar’s value. In addition to the positive correlation with stocks and bonds, falling interest rates also tend to drive foreign investors away from the dollar toward greener, higher-yield pastures.
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