The Daily Prophet: America's Stock Price Downgraded to 'Sell'

If a currency is to a nation what a share price is to a company, then the dollar just got slapped with a "sell" recommendation -- and by none other than U.S. Treasury Secretary Steven Mnuchin. The Bloomberg Dollar Spot Index fell the most since March to its lowest since 2014 after the Trump administration official said in Davos, Switzerland, that a weaker dollar is good for U.S. trade.

Although Commerce Secretary Wilbur Ross later indicated that markets overreacted and that the comments don't mark a shift in America’s long-standing strong-dollar policy, investors are starting to worry about the fallout from a greenback that shows few signs of bottoming. After all, if a stronger economy, a booming stock market and three interest rate increases by the Federal Reserve weren't enough to prevent the dollar from depreciating in 2017, what's on the horizon that could turn it around? Although a weaker dollar could theoretically be good for exporters, there are also downsides, such as the potential for faster inflation and higher interest rates if foreign investors see less incentive to finance America's growing budget deficit when the trade-off is holding assets in a depreciating currency.

The latest IMF data show that dollars make up 63.5 percent of global currency reserves, down from 65.3 percent at the end of 2016 and the smallest percentage since mid-2014. "Central banks and governments have been recently diversifying their reserve currency, which means selling U.S. dollars," James Hughes, the chief market analyst at AxiTrader, wrote in a research note.

COMMODITIES LIKE A WEAK DOLLAR
In the commodities market, the reaction to the falling dollar was swift. At one point, the Bloomberg Commodity Index rose the most since August, touching its highest level since October 2015. Commodities are largely priced and traded in dollars, so a weaker greenback tends to translate into higher prices. And higher prices for commodities can mean faster inflation. Assuming the current levels of oil and the dollar are maintained, inflation as measured in import prices will likely jump to a 7 percent rate over the next few months from about 3 percent currently, Tom Porcelli, the chief U.S. economist at RBC Capital Markets, wrote in a research note. The biggest gainers on Wednesday included metals such as gold, silver and palladium, as well as copper. Even grains, which lagged behind the rally in commodities last year, saw some big jumps, led by a 5.25 percent increase in corn and a 11.5 percent surge in wheat. Soybeans gained 6 percent.