Will a Weaker Dollar Hurt Stocks?

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Will a Weaker Dollar Hurt
Stocks?

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The dollar is heading for its worst
month this decade after Fed Chairman
Janet Yellen reiterated that the Fed
will move cautiously in raising interest
rates.

For the investors the question is, will a
weaker dollar hurt stocks or help?

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Before We Continue…

Bloomberg Business writes about
Yellen sending the dollar to its
worst month since 2010.

The dollar headed for its worst month
in 5 1/2 years after Federal Reserve
Chair Janet Yellen doused speculation
the U.S. central bank will pick up the
pace of interest-rate increases. The
yen strengthened.

A gauge of the greenback approached
the lowest since June after Yellen said
the Fed will act “cautiously” as it
looks to raise rates against the
backdrop of a deteriorating global
economy.

The dollar has fallen against all of its
31 major peers in March with
Russia’s ruble and Brazil’s real
posting the biggest gains, helping
emerging-market currencies to their
best month in 18 years.

The Fed sees itself as walking a
narrow line with inflation on one side
and recession on the other.

Although the US economy is moving
along the global picture is bleak,
especially in emerging markets and
China.

Thus the Fed will proceed slowly in
raising rates and the dollar will
weaken a bit.

Will a weaker dollar hurt stocks or
help them?

Stocks Higher on News of
Cautious Approach to
Higher Rates

The stock market’s first response to
Yellen’s speech was to go up.

Reuters reports that Wall Street is
higher on the news of a cautious
approach to higher rates.

Wall Street was higher on Wednesday
as investors took comfort from
Federal Reserve Chair Janet Yellen’s
comments that the central bank
should tread cautiously on raising
rates this year.

Global markets cheered Yellen’s
remarks, which suggested that a rate
hike was not immediately on the
horizon.

The dollar fell more than a percent,
while bond prices rallied.

“Yellen’s comments allowed investors
to breathe a sigh of relief that the Fed
will not be raising rates in April,” said
Sam Stovall, U.S. equity strategist at
S&P Global Market Intelligence in
New York.

Why are investors so pleased that
rates are not going up in a hurry?

Interest Rates and
Markets

Investopedia writes about how
interest rates affect U.S.
markets.

Changes in interest rates can have
both positive and negative effects on
the U.S. markets.

When the Federal Reserve Board (the
Fed) changes the rate at which banks
borrow money, this has a ripple effect
across the entire economy.

higher interest rates mean that
consumers don’t have as much
disposable income and must cut back
on spending.

When higher interest rates are
coupled with increased lending
standards, banks make fewer loans.

This affects not only consumers, but
also businesses and farmers, who cut
back on spending for new equipment,
thus slowing productivity or reducing
the number of employees.

The tighter lending standards mean
that consumers will cut back on
spending, and this will affect many
businesses’ bottom lines.

This will cause the businesses to
reduce the number of employees that
they have and to hold off on any
major equipment purchases.

The bottom line is if interest rates go
up too far and too fast they hurt the
economy and by extension the stock
market.

It turns out that a weaker dollar will
not hurt stocks at least in the short
run.

However, if the Fed waits too long and
inflation takes hold that might be
another story.

Will a Weaker Dollar Hurt Stocks?

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