Investors might not have noticed it amid all the excitement, but a stealthy slide by the U.S. dollar should get some of the credit for the stock market’s stunning rally.
The ICE U.S. Dollar Index DXY, +0.28%, a measure of the U.S. currency against a basket of six major rivals, rose 0.3% Friday to 96.70, but remained on track for a 1.4% weekly decline. The index had traded at a more-than-three-year high near 103 in mid-March as the panic created by the COVID-19 pandemic created a global scramble for dollars. The index has retreated around 5.9% from that peak, leaving it up around 0.6% for the year to date.
“There were plenty of distractions last month but the almost silent slide in the greenback must go down as one of the most unremarked devaluations in history,” wrote Sean Darby, chief global equity strategist at Jefferies, in a note.
A weaker dollar is often welcome news for U.S. equities, as it makes exports of U.S. good cheaper to foreign buyers. But thanks to the dollar’s role as the international reserve currency, it can also be a boon for global growth, particularly since its run-up came as companies around the world drew down credit lines in an effort to hoard dollars, boosting funding costs. The Federal Reserve responded by expanding existing swap lines with major central banks and opening new swap lines with others, while taking additional steps to meet dollar demand.
‘There were plenty of distractions last month but the almost silent slide in the greenback must go down as one of the most unremarked devaluations in history,’ said Sean Darby, chief global equity strategist at Jefferies.
A weaker dollar comes as a relief to emerging markets, where borrowing in dollars has risen in recent years. A weaker buck can also be a positive for commodities that are priced in the monetary unit, making them cheaper to users of other currencies. ♦
