Capital Ideas

Investment insights from Capital Group

Why is the dollar weaker? Look towards Europe


The strength of the U.S. dollar in recent years has been a headwind for some multinational companies’ revenues and earnings. However, a weakening dollar in 2017 has provided a tailwind to corporate sales and profits, which were strong during the second quarter. The improving European economic environment has been one of the catalysts for the dollar’s weakness. The spread between the 10-year U.S. Treasury bond yield and the euro area 10-year bond yield has narrowed as the dollar has weakened, which may signal that businesses and investors alike are seeing risks dissipating in Europe relative to the United States. If Europe’s economic improvement continues, spreads could continue to narrow and the U.S. dollar may further weaken, which would lend additional support to multinational companies’ revenues and earnings.


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