Chart of the week: Dollar index moves lower

By Mike Larson

Federal Reserve Chairman Jay Powell was unequivocal. He didn’t analyze his words. Instead, he made it clear and concise on Friday that the Fed is ready to cut rates… and soon! His specific comments in Jackson Hole, Wyoming were…

“The time has come for politics to adapt. The direction of travel is clear, and the timing and pace of tariff reductions will depend on the data received, the evolution of the outlook and the balance of risks.”

Powell’s speech had a broad impact on many markets. But as you can see in the MoneyShow Chart of the week below, one of the most significant moves was in the US Dollar! This multi-year chart shows the dollar index (DXY), an indicator that tracks the greenback’s performance against six major world currencies. These include the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona and swiss franc

You can see that the dollar took off in 2022 as the Fed aggressively raised interest rates. That’s because relative yields are a key driver of the currency. Higher yields in one country relative to another tend to boost the currency of the higher yielding nation relative to the currency of the lower yielding one.

But after moving largely sideways in 2023 and early 2024, the DXY now appears to be breaking down. If he fails to maintain this 100-101 level, a dip towards 90 could be in the cards.

That creates profit opportunities for forex traders, of course. But it also affects other markets. A falling dollar tends to increase commodity prices, including precious metal prices. It also usually gives global stocks a tailwind.

So if you’re a US investor, it might cost you more to travel abroad if the dollar breaks down. But your portfolio can rack up some nice gains – as long as you’re invested in the right types of assets! So, as I keep saying “Be bold”, buy gold…and now, add some stocks and foreign funds to the mix.

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Editor’s note: The abstracts for this article were chosen by the editors of Seeking Alpha.