A Deep Dive on the US Dollar
The World’s Currency
The value of the dollar dropped to its lowest level in two years. Analysts are concerned that this downward trend could continue, which might hurt the dollar’s position as the reserve currency for the world—a role it’s been serving since World War II. The dollar’s power has a huge impact on US fiscal policy and the role of the US in the global economy.
Nearly every country in the world needs dollars because most international transactions are done using dollars. For this reason, there is high demand for US debt, so the country is able to borrow money without worrying about large changes in exchange rates.
Some Countries Pivot to Euros and Gold
If the dollar were to lose its status as the world’s common currency, the cost of US debt would skyrocket. This could lead to inflation and a loss of confidence in American assets.
Other nations are aware of the power that the dollar’s status gives the US. China and Russia have recently begun to do more business in euros, which chips away at the dollar’s influence around the world. Other central banks have also begun to buy gold to store value instead of dollars.
The Upsides of a Weak Dollar
A weaker dollar can have ripple effects across the investment landscape. A bear market for the US currency could help gold and gold stocks continue to climb. Other precious metals like silver may also benefit from a weakened dollar.
Additionally, companies with a large amount of international sales may also see gains because of a weakened dollar. Goldman Sachs (GS) reported that companies with sales abroad that could benefit include IT companies like Lam Research (LRCX) and NVIDIA (NVDA), and energy companies like Baker Hughes (BKR).
Investors will be carefully watching to see if the dollar’s slide continues, and what impact that could have on stocks and the role of the US in the global economy.
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