The next question is whether the US dollar can hold the 50-day moving average .
USD has fallen back to a key level, which will have a significant impact on the stock market. 
dollar index (DXY) that measures the dollar's exchange rate with a basket of currencies has fallen more than 3% since hitting a decade-long high of just above 114 at the end of September. The reason why the US dollar exchange rate "takes off" was because when the Federal Reserve Fed was fighting inflation , raised interest rates faster than other countries. As the dollar strengthens, bond yields rise, making U.S. Treasury bonds relatively more attractive.
Now, overseas investors are hoping that the Fed will slow down the pace of interest rate hikes soon, so they no longer have reason to buy US dollars to snap up bonds, which has caused Treasury yields to fall again. “As the market begins to digest … possibly below expectations of rate hikes, the U.S. dollar index is falling from highs,” wrote Tom Essaye of market research firm Sevens Report. The current result of
is that the dollar is at a critical level. According to Dow Jones market data, the U.S. dollar index has now fallen to just above 110, slightly below its 50-day moving average. This means that investors have lost some confidence in the ability of the US dollar to continue to rise.
stock investors should be happy. Since the beginning of this year, the financial market model has been that as U.S. interest rates and the dollar have risen, the stock market has fallen. S&P 500 is down about 20% from its all-time high set in early January this year.
Because many cross-border transactions are conducted in US dollars, the strengthening of the US dollar will hurt global economy . In addition, more expensive dollars will also reduce the profits of multinational companies in the United States. U.S. companies selling goods or services in other currencies will find a decrease in revenue in US dollars when converting revenue back to strong dollars.
The revenue of many large American companies has declined. For example, Meta Platforms (META), which recently disclosed its financial results, was partially attributed to a strengthening US dollar. The same is true for Google parent company Alphabet(GOOGL).
The share price of the US-based online dating company Match Group (MTCH) saw a double-digit percentage decline the day after the second quarter earnings came out as a strengthening dollar weakened profits. According to FactSet, about 60% of sales of Estee Lauder (EL), one of the world's largest skin care, cosmetics and perfume companies, comes from outside the United States, with the company's share price falling 20% in the past six months, while the U.S. dollar index rose 7% during the same period.
Now, stocks are rising as the dollar falls from its highs. The S&P 500 has risen nearly 5% since the dollar began to depreciate. The next question for
is whether the US dollar can hold its 50-day moving average. If possible, the dollar may break through the highs further, indicating that market confidence in it will continue to rise, while stocks may fall, especially if the Fed will continue to send signals of positive interest rate hikes.
article | Jacob Sonenshine
editor | Tina
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original articles from "barronschina" may not be reproduced without permission. See the report "The Dollar Is at a Crossroads. It Could Be Great for Stocks." in the English version.
(The content of this article is for reference only, and investment advice does not represent the tendency of "Barron's"; the market is risky, so investment must be cautious.)
