Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Strange Fall of the US Dollar

Currencies / US Dollar Aug 10, 2017 - 09:35 AM GMT

By: Dan_Steinbock

Currencies As the exuberant Trump White House has been mugged by realities, US dollar is plunging to record lows.

What a difference a year makes! Last November, US dollar hit its 13-year high. According to the US Dollar Index, which measures the currency against a basket of six other major currencies, the greenback soared to a peak of 103. By early August, US dollar is struggling around less than 93.




Recently, the Index has climbed to 93.5, after a “strong jobs report” raised expectations of an interest rate hike later this year. Yet, job gains in July were driven mainly by low-paying part-time jobs. That will increase the Fed’s interest, but may not result in a rate hike unless wage gains translate into inflation.

Where is the dollar going?

Great expectations, harsh realities

In the fourth quarter of 2016, when the US dollar still seemed near-invisible, it was driven by the triumphant post-election exuberance and the associated bond yields (and the Fed’s anticipated rate hike), and expectations of Trump’s fiscal expansion (infrastructure stimulus).  

Yet, already during the transition, the effort of the US intelligence communities to subdue Trump’s Russia policy began to erode faith in a strong US dollar. While the Fed had to limit rate hikes and prolong the pause between them, Trump’s fiscal ambitions became constrained by the ongoing Mueller Russia investigation. The White House is divided, and so is the Republican House and Senate.

Since December 2016, US dollar has failed to appreciate, despite three hikes by the Federal Reserve. Meanwhile, US consumer prices have plunged from 2.6% in January back to 1.6% today.

Neither Trump nor the US explains everything about the dollar’s fall. The Dollar Index is sensitive to the fluctuations of its largest constituent currencies comprise it, particularly the euro (58% weight). Some dollar losses could be attributed to the euro’s strengthening, which began with Macron’s election triumph in France that eased concerns about the EU break-up. And as the European Central Bank (ECB) gave an upbeat EU growth and inflation outlook, euro’s rise continued.

But while Chancellor Merkel’s expected election win in the fall will support the euro, Macron’s approval rating is falling, German carmakers face rising challenges, Italian elections and UK Brexit loom ahead, along with the ECB’s exit from quantitative easing and possible rate hikes in 2018.

Short-term resilience, longer-term erosion

In the coming months, US dollar could recover if the White House can get its act together and the Republican lawmakers come up with some legislative success – and if the Fed can execute new hikes without adverse effects.

In reality, risks continue to prevail. Instead of fostering growth, the White House is about to ignite trade friction with China regarding intellectual property rights. Trump has already alienated his European NATO partners by declaring US steel imports a “national security issue,” which will cause economic damage to Germany, Canada and other major steel importers in America.

If trade friction will spread from steel to aluminum, semiconductors and other areas, world trade is likely to take a new hit, as US “trade defenses” will unleash waves of retaliation from Europe to Asia. In turn, Washington’s Russia sanctions will intensify a new Cold War and has already resulted in Russian retaliation. For months, EU leaders have warned Washington about such sanctions.

In this odd status quo, it is easy to be distracted by short-term fluctuations. Yet, if one takes a perspective of three-to-four decades, the evolution of the US dollar seems continuous.  Since the 1970s and the eclipse of the gold standard, three periods of dollar surges have been followed by associated periods of decline.

Despite the continued international strength of the US dollar, each of these periods reflects a steady relative erosion of the dollar, from its all-time high of 165 in 1985 to barely 120 in the early 2000s and to 103 last fall (see the black trend line in the US Dollar Index Figure). 

In the coming months, US dollar could still prove resilient, except for uncertainty and volatility, especially if the Trump administration finds itself cornered. In the longer-term, US dollar’s recent decline is consistent with its longstanding relative erosion.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The original, slightly shorter version was published by South China Morning Post on February 28, 2017

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in