Decline in US dollar accelerates

A view of the New York Stock Exchange. The dollar’s weakness would take at least a year to feed through to the US manufacturing sector. (AFP)
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Updated 29 July 2020

Decline in US dollar accelerates

  • The decline adds fuel to a global momentum rally that has boosted prices for everything

WASHINGTON: An accelerating decline in the US dollar is reverberating around the world, adding fuel to a global momentum rally that has boosted prices for everything from technology stocks to gold.

The US dollar index, which measures the greenback against six other major currencies, is down around 9 percent from its March highs and is on track for its worst month since 2011, pressured in part by expectations that the United States will take a bigger hit to growth than other economies from the coronavirus pandemic.

Because of the dollar’s central role in the global economy, a sustained sell-off in the greenback could buoy a broad market rally driven by expectations of continued economic stimulus from the world’s central banks and governments.

At the same time, further dollar weakness would likely be an unwelcome development for economies such as Europe and Japan, as their own rising currencies threaten to weigh on growth and efforts to spark inflation.

“The weaker dollar is almost becoming a self-fulfilling prophecy, with gains for risk assets seeing the dollar weaken further, fueling additional gains,” said Michael Brown, senior analyst at payments firm Caxton.

The dollar is down around 3 percent year-to-date, after rising for each of the last two years. The greenback slid nearly 10 percent in 2017. A weaker dollar makes US exports more competitive abroad and helps US multinational companies by making it cheaper for them to convert profits back into their home currency. That’s potentially good news for a rally in US stocks that has slowed in recent weeks after coming within distance of all-time highs.

Historically, the benchmark S&P 500 index has returned a median 2.6 percent in months when the dollar moves sharply lower, with technology and energy stocks faring best, analysts at Goldman Sachs said in a recent report.

A 10 percent fall in the value of the dollar against a basket of trade-weighted currencies would increase 2020 earnings per share by about 3 percent, Goldman said. Goldman analysts expect the dollar to fall another 5 percent over the next 12 months.

But a weaker dollar may be of little near-term political benefit to President Donald Trump, who is seeking a second term in the November elections and has complained that the currency’s multi-year rally hurts US manufacturers.

The dollar’s weakness would take at least a year to feed through to the manufacturing sector, “too long to have a favorable impact for the president in the November election,” said Alan Ruskin, chief international strategist at Deutsche Bank.

Other assets are already benefiting from the dollar’s drop. Gold, which like many commodities is priced in the US currency and becomes more affordable to foreign buyers when the dollar falls, stands near its historic high, part of a rally that has driven the S&P/Goldman Sachs Commodity Index 34 percent higher since late March, as of Monday.

Developing countries are also likely to cheer a weaker dollar as it makes it cheaper for them to service debt denominated in the US currency.

Emerging market currencies such as the Brazilian real and South African rand have come screaming back in recent weeks, while the MSCI Emerging Markets Index, which measures stock performance, is up some 40 percent from its March lows.


Huawei: Smartphone chips running out under US sanctions

Updated 08 August 2020

Huawei: Smartphone chips running out under US sanctions

  • Huawei is at the center of US-Chinese tension over technology and security
  • Washington cut off Huawei’s access to US components and technology last year

BEIJING: Chinese tech giant Huawei is running out of processor chips to make smartphones due to US sanctions and will be forced to stop production of its own most advanced chips, a company executive says, in a sign of growing damage to Huawei’s business from American pressure.
Huawei Technologies, one of the biggest producers of smartphones and network equipment, is at the center of US-Chinese tension over technology and security. The feud has spread to include the popular Chinese-owned video app TikTok and China-based messaging service WeChat.
Washington cut off Huawei’s access to US components and technology including Google’s music and other smartphone services last year. Those penalties were tightened in May when the White House barred vendors worldwide from using US technology to produce components for Huawei.
Production of Kirin chips designed by Huawei’s own engineers will stop Sept. 15 because they are made by contractors that need US manufacturing technology, said Richard Yu, president of the company’s consumer unit. He said Huawei lacks the ability to make its own chips.
“This is a very big loss for us,” Yu said Friday at an industry conference, China Info 100, according to a video recording of his comments posted on multiple websites.
“Unfortunately, in the second round of US sanctions, our chip producers only accepted orders until May 15. Production will close on Sept. 15,” Yu said. “This year may be the last generation of Huawei Kirin high-end chips.”
More broadly, Huawei’s smartphone production has “no chips and no supply,” Yu said.
Yu said this year’s smartphone sales probably will be lower than 2019’s level of 240 million handsets but gave no details. The company didn’t immediately respond to questions Saturday.
Huawei, founded in 1987 by a former military engineer, denies accusations it might facilitate Chinese spying. Chinese officials accuse Washington of using national security as an excuse to stop a competitor to US tech industries.
Huawei is a leader among emerging Chinese competitors in telecoms, electric cars, renewable energy and other fields in which the ruling Communist Party hopes China can become a global leader.
Huawei has 180,000 employees and one of the world’s biggest research and development budgets at more than $15 billion a year. But, like most global tech brands, it relies on contractors to manufacture its products.
Earlier, Huawei announced its global sales rose 13.1 percent over a year ago to $65 billion in the first half of 2020. Yu said that was due to strong sales of high-end products but gave no details.
Huawei became the world’s top-selling smartphone brand in the three months ending in June, passing rival Samsung for the first time due to strong demand in China, according to Canalys. Sales abroad fell 27 percent from a year earlier.
Washington also is lobbying European and other allies to exclude Huawei from planned next-generation networks as a security risk.
In other US-Chinese clashes, TikTok’s owner, ByteDance, is under White House pressure to sell the video app. That is due to fears its access to personal information about millions of American users might be a security risk.
On Thursday, President Donald Trump announced a ban on unspecified transactions with TikTok and the Chinese owner of WeChat, a popular messaging service.