Some not so great news today – the U.S. dollar is weakening to a two year low. Our currency is on track now for its worst performing month since April 2011.
The ICE dollar index measures the value of the U.S. dollar against six other currencies. The Japanese yen, the Euro, and the British pound all rose, while the dollar slipped 0.9% – its lowest level since July 2018. Overall, the dollar has lost 3.7% of its value in July.
Consensus seems to be that this is happening because of a perception that the United States doesn’t have a grip on the coronavirus. Cases have surpassed four million, with nearly 150,000 deaths. The longer this goes on, the longer economic activity will remain depressed and interest rates stay low, which in turn reduces demand for US currency.
The Federal Reserve will wrap up its next rate setting meeting on Wednesday. The central bank has committed to keeping interest rates low for the foreseeable future, but will still offer its economic outlook. It may take other steps, such as setting targets for some Treasury yields. These actions are intended to keep the economy moving (anyone who has made a mortgage payment has seen this in action), but they also weaken the dollar and make it less attractive to investors.
The economy is not particularly healthy at the moment. Unemployment claims rose last week, for the first time in four months. Unemployment benefits are set to run out at the end of the week. There’s been pent up demand for big ticket items like cars and homes, but as the durable goods report showed today, business investment is down, and the aerospace industry is still struggling. This is unlikely to change until the economy can fully, and comfortably, reopen.