As the economic strugglesIt has been a difficult month for the US dollar. Our currency may be on its way to the weakest month in almost a decade, according to the Wall street journal. Two things have caused the recent decline: our coronavirus outbreak and low interest rates of the Federal Reserve.
As a result, investors have been selling the US dollar and buying other currencies in places with lower levels of infection. While a weak US dollar can be expensive when traveling abroad, Money reports It can be a good thing for your investment portfolio. Here’s why.
How a weak dollar impacts the actions of the United States
As the US dollar falls, American products become less expensive abroad. 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, the cheaper price generates more demand.
According to Money, some of the companies that will benefit may already be part of their portfolio, such as those represented in the S&P 500. The weak dollar may have the biggest impact on US companies doing business abroad, such as technology companies. , compared to companies focused on domestic businesses, such as public services or telecommunications companies.
How a weak dollar impacts foreign stocks
There is more good news: the weak US dollar can also have a positive impact on foreign investment in your portfolio. When you buy foreign investments, you are investing in two things: foreign stocks and Foreign currency.
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When you own foreign stocks and the US dollar weakens, you get a boost since the return of owning the foreign currency. This means that you will make a profit when the currency is translated back into US dollars.
What to expect in the future
Unfortunately, no one can predict how the dollar will fare in the future. But if we continue to struggle with coronavirus infections, and government stimulus continues, experts say the US dollar may remain weak for a time.
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