The friendship ended in US dollars. Other currencies are our best friends now. As a matter of fact, this is just a meme, but it’s not too far from the truth. The US dollar has been the forex market leader in 2022 and a safe haven for investors. However, in the first half of July 2023, it reached its lowest level since April last year. Let’s find out why it happened and what happens next.
of US dollar index It reflects the strength of the US dollar against other major currencies. In other words, this indicator provides insight into the overall position of the US dollar. Looking at the chart depicting DXY’s movements in July, we can see that things are not going well.
Examining a longer period, we see that DXY has not fallen below the 100 mark since April 2022.
In fact, the franc currency, the euro and the pound have filled the gap.
Last week’s decline in DXY can be attributed to inflation data. Inflation has fallen steadily and is now at 3% year-on-year. Inflation and currency rates are almost always directly correlated (although there are exceptions such as the Turkish lira, but that’s a whole other story). Central banks play a key role here, raising interest rates to combat inflation.
Falling inflation in the US suggests to investors and analysts that the Fed’s hawkish cycle is coming to an end. Market participants expect only one rate hike.
Such forecasts lead to a decline in the attractiveness of the US dollar and an increase in demand for alternative assets such as other major currencies and equities.When dealing with these types of assets, the economic calendar and inventory screener Useful for market analysis.
Important note: This and other indicators, such as consumer prices, are still quite high, even though inflation continues to decline month by month. This suggests the Fed could halt the policy cycle, perhaps without cutting key rates, and the hawkish mood could last longer than expected.
Of course, there will be some short-term growth drivers for DXY and USD in the coming months, but they are unlikely to be material to the long-term outlook. Moreover, many experts predict a major crisis for the US economy.
All of these seem like reasons to consider alternative assets. However, it is imperative that you do thorough research before making any decision, and this time is no exception. Who knows – perhaps analysis will reveal that it is too early to write off the dollar.
Disclaimer: The views expressed in this article are those of the author and may not reflect the views of the author. Kitoko Metals Co., Ltd. The author makes every effort to ensure the accuracy of the information provided. However, neither Kitco Metals Inc. nor the authors can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation of an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the authors of this article do not accept liability for loss and/or damage resulting from the use of this publication.
