The US dollar (DX=F) extended its decline this week, reaching a 15-month low following the release of the latest Consumer Price Index (CPI) data. The report revealed that consumer prices in June had risen at the slowest pace since March 2021, solidifying a trend that strategists had been anticipating for days.
Analysts point to the divergence between US inflation and that of other regions, such as Europe and Asia, as a key factor in the dollar’s depreciation. The Federal Reserve’s relatively advanced position in terms of raising interest rates compared to other central banks has contributed to the Greenback’s weakening against the euro and Asian currencies.
The current trajectory of the US dollar represents a reversal from its strength in the previous year. In September 2022, the Dollar Index (DX-Y) hit a 20-year high of 114, whereas it now hovers just below 100.
The weaker dollar has provided a boost to asset prices, with US multinationals benefiting from increased export competitiveness. JC Parets, president and founder of Allstarcharts.com, believes that a stronger dollar later in the summer or fall could pose challenges for stocks.
Commodities, which are denominated in dollars, are expected to be another beneficiary of the weaker greenback. However, the impact on crude oil prices remains uncertain, with oil investors focusing on demand growth and output cuts from OPEC and Russia. Stronger real interest rates are currently offsetting the effects of the dollar on crude prices.
Despite the mixed evidence, on Thursday, both West Texas Intermediate (CL=F) and Brent (BZ-F) futures experienced a nearly 2% increase.