Illustration: Sarah Grillo/Axios

After sinking on Friday, the dollar is teetering near its lowest in more than two years, and threatening to decline even further after Fed chair Jerome Powell confirmed plans to let inflation run hot in the future, likely meaning 0% U.S. interest rates for quite some time.

Why it matters: For the U.S. currency to fall in value, other currencies must rise and that can be especially harmful to export-oriented economies like the eurozone and Japan, whose central banks may be forced to take action in the coming months.

What it means: A strong currency makes a country's exports more expensive and therefore less attractive, denting a needed source of income, especially as the world tries to recover from the coronavirus pandemic.

  • But with the European Central Bank and Bank of Japan both already holding negative interest rates and having significantly expanded their respective quantitative easing programs, weakening their currencies may require extreme measures.

The big picture: The U.S. has done a far worse job handling the coronavirus pandemic than most of Europe and Japan, but that has led to a weaker currency and a much stronger bounce in stock prices. The benchmark S&P 500 has gained 8.6% this year, with the Nasdaq up 30%.

  • The currency appreciation is weighing on stock indexes in the eurozone and Japan, which have recovered much more slowly than U.S. equities this year.
  • Germany's DAX is up 5% for the year in dollar terms, but in euros the index remains 1.6% lower than where it began 2020, with similar outcomes for the Italian benchmark FTSE MiB (-10.5% YTD in dollars, -15.6% in euros) and France's CAC 40 (-11.3% YTD in dollars, -16.3% in euros), per FactSet data.
  • Japan's Nikkei index is flat on the year in dollar terms, but about 3% lower in yen.

Where it stands: The euro has risen to $1.19 and is trading just below the two-year high it touched earlier in August, threatening to break back toward its early 2018 levels around $1.25, while the dollar has fallen to 105.30 yen, eyeing 100 yen per dollar.

  • The Swiss franc, Swedish krona and Danish krone all have gained at least 6.5% versus the dollar this year.

Worth noting: Commodities, which are largely priced in dollars, also look poised to further benefit from the greenback's slide. Gold and silver have had breakout years, each up more than 30% for the year, and other commodities are picking up — copper has risen 12% since July 1, and cocoa is up 23.6%.

Go deeper

Dion Rabouin, author of Markets
Sep 24, 2020 - Economy & Business

Why gold and silver prices are sinking

Data: FactSet; Chart: Axios Visuals

Reduced inflation and stimulus expectations are combining with a notable uptick in coronavirus cases in the U.S. and especially in Europe where there is fear a second wave of the virus could again cause businesses to close and dent the global economic recovery.

The intrigue: That would normally provide a boost for bond prices and precious metals, but gold and silver are instead following inflation expectations lower. And government bond yields have fallen nearly as low as they can without the Fed resorting to negative interest rates, says Subadra Rajappa, head of U.S. rates strategy at ‎Société Générale.

Dion Rabouin, author of Markets
Sep 24, 2020 - Economy & Business

Investors aren't convinced the Fed can raise inflation

Expand chart
Data: St. Louis Fed; Chart: Axios Visuals

Members of the Fed, including chair Jerome Powell, have spent nearly a month talking about the central bank's shift to average inflation targeting in an effort to boost U.S. inflation and it has fallen on deaf ears.

Driving the news: A survey from the Cleveland Fed found that "despite extensive coverage in the news media, Powell’s speech apparently did not reach or register with the vast majority of the population."

Updated 8 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 12:30 p.m. ET: 32,626,165 — Total deaths: 990,134 — Total recoveries: 22,523,822Map.
  2. U.S.: Total confirmed cases as of 12:30 p.m. ET: 7,040,313 — Total deaths: 203,918 — Total recoveries: 2,727,335 — Total tests: 99,488,275Map.
  3. States: U.S. reports over 55,000 new coronavirus cases — "We’re not closing anything going forward": Florida fully lifts COVID restaurant restrictions.
  4. Health: Young people accounted for 20% of cases this summer — The long-term pain of the mental health pandemicFewer than 10% of Americans have coronavirus antibodies.
  5. Business: Millions start new businesses in time of coronavirus.
  6. Education: Summer college enrollment offers a glimpse of COVID-19's effect.