The recent decline in the value of the U.S. dollar against its rivals has sparked a rally among producers of metals and other raw materials. This shift comes as Federal Reserve Chairman Jerome Powell cautioned against immediate rate cuts, driving up the dollar’s value and negatively impacting dollar-sensitive sectors like the materials group.
Weakening Dollar Supports Global Market Recovery
According to experts, the global market recovery witnessed in the past three months has been underpinned by the weakening of the U.S. dollar. This has led to improved global financial conditions, particularly for emerging markets. Additionally, a weaker dollar has made commodity imports, such as crude oil, more affordable. Furthermore, countries with dollar-denominated debt have also benefited as the dollar’s strength diminishes.
Quincy Krosby, Chief Global Strategist at brokerage LPL Financial, explains, “A weaker dollar against the basket of currencies for the country’s major trading partners helps ease global financial conditions, particularly for emerging markets. Commodity imports, especially crude oil, become less expensive and countries with dollar-denominated debt benefit as the dollar loses strength.”
Inflation Approaching Pre-Pandemic Levels
While the rate of U.S. inflation is gradually approaching pre-pandemic levels, Neel Kashkari, President of the Minneapolis Federal Reserve, notes that we haven’t quite reached that point yet. This observation suggests that there may still be room for further economic recovery.
Euro Loses Ground Against British Pound Sterling
Adding to the market dynamics, the euro experienced a decline against the British pound sterling following a fiscal stimulus package announcement. This development further highlights the intricate relationship between different currencies and their impact on various sectors.