Opportunities for savvy investors in a weak-dollar environment

The cooling of U.S. inflation has fueled increased expectations for an early end to the Fed's interest rate hike cycle, intensifying bearish sentiment towards the U.S. dollar. The USD Index has hit lows not seen in nearly 15 months, falling below 100. Given the USD performance has far-reaching implications for global assets,here are some potential investment opportunities in a falling dollar:

Companies with a significant portion of overseas revenues generally stand to benefit from a weaker U.S. dollar.On the one hand, the falling dollar makes their products cheaper, thereby enhancing their competitiveness in the global market. On the other hand, they can convert their foreign earnings into USD at more favorable exchange rates, which bolsters their profits.

According to Bespoke Investment Group's analysis of Russell 1000 companies,the U.S. technology sector generates slightly over 50% of its revenues from overseas markets.The team further classified the Russell 1,000 into deciles based on their share of revenues abroad. The first decile includes stocks generating 100% of their revenue within the U.S., while the tenth decile represents companies with the highest international exposure.As shown in the chart below, firms with greater international exposure have stronger returns and outperform companies generating all their revenue domestically.

As most commodities traded on international markets are typically priced in the U.S. dollar, a weaker dollar generally results in higher commodity prices.Therefore, investing in commodity-based assets such as gold, silver, oil, and other natural resources could benefit from a weaker U.S. dollar.

The tumbling dollar is good news for investors in emerging markets in many respects, not only making the emerging market countries easier to pay back the dollar-denominated debt.

Emerging-market currencies: The sustained downturn in the U.S. dollar will likely pave the way for stronger emerging market currencies, leading to higher profitability in foreign exchange strategies such as dollar-financed carry trades.According to data compiled by Bloomberg from the Commodity Futures Trading Commission, hedge funds have adopted a bearish stance towards the USD for the first time since March and switched to a net short position on the U.S. dollar during the week ended July 7.

Emerging-market stocks or bonds:The cooling inflation data and the weakening USD have heightened the prevailing risk sentiment in emerging markets. As a result, capital previously invested in the U.S. market may transition back towards emerging markets faster. Additionally, emerging market assets could provide investors with a dependable hedge against potential recessionary conditions in the U.S.

Source: U.S. News, Bespoke, MacroMicro,Bloomberg