How the economy is struggling, it was a rough month for the US dollar. Our currency may be on its way to the weakest month in almost ten years Wall Street Journal, The recent decline has caused two things: our coronavirus outbreak and low interest rates from the Federal Reserve System.
As a result, investors sold the US dollar and bought other currencies in places with lower levels of infection. Although a weak US dollar can be costly when traveling abroad, Money reports This can be good for your investment portfolio – here’s why.
How a weak dollar affects US stocks
When the US dollar falls, US products abroad are cheaper. This creates more competitive prices for companies that sell products elsewhere. For example, when a US company creates a $ 2 product and sells it for $ 1.85 in another country, a cheaper price will create more demand.
According to Money, some of the companies that will benefit may already be part of your portfolio – for example, those represented in the S&P 500. A weak dollar may have the greatest impact on US companies operating abroad, such as technology companies, and companies focused on for home business – for example, public services or telecommunications companies.
How a weak dollar affects foreign stocks
There is good news: a weak US dollar can also have a positive effect on the foreign investment of your portfolio. When you buy foreign investments, you invest in two things – abroad and foreign currency.
If you own foreign stocks and the US dollar weakens, you get support since the return of foreign currency ownership. This means that you will make a profit when the currency is converted back to US dollars.
What to expect in the future
Unfortunately, no one can predict how the US dollar will pay in the future. However, if we continue to fight coronavirus infections – and government stimuli continue – experts say the US dollar may remain weak for a while.