Big picture thinking about the US Dollar - what's next?
The US dollar continues to get weaker and weaker. You see it in the news and on financial research across the world. It's weakening especially relative to other currencies and even emerging currencies. How long can this go on? What's next? Where would you rather put your money?
The key to understanding the US Dollar and its weakness is the expected push toward inflation not only by the Fed but also government policy. In addition, the US economy is still trying to emerge from the Coronavirus crisis. Deflation has been looming in every corner and now the markets actually want to see inflation... who would have expected that. What's interesting, however, is that even after record stimulus and inflation expectations by the Fed, is that just by looking at the chart above, you can see that Dollar is still nowhere near its recent lows. These lows include:
• The end of the Dotcom Crash in 2002-2003
• The great financial crisis in 2008-2009
• And even the 2011-2013 Eurozone crisis that pushed its strength upward
The Dollar was actually lower during all three of these moments. So think about how strong the dollar has actually remained to still be above those three key financial events. Wow.
One other important note to add to this goes as follows: US equity markets continue to rise, US tech companies are doing innovative things, and businesses are starting to churn out profits while also tapping cheap credit markets. We may see an M&A boom if this trend continues. It is hard to bet against this kind of money flow, even with inflationary expectations, the bullish aspect is the business side of things, the innovation, and growth. Additionally, as unemployment returns and businesses begin hiring again, the Dollar may actually shock everyone. Perhaps it's poised to rise.
But the core point of this thinking and chart notes above is as follows:
For how much weakness the Dollar has seen, for how much news it has garnered, one thing remains fascinating... it's actually not *that* low relative to other momentous moments in market history. It's actually held up rather well considering the size and impact of the events before us.
I was bearish early on, but now I am starting to change my view. I think it will chop sideways for the next year with a possibility toward rising or even having a bullish bias. Thanks for reading!
The key to understanding the US Dollar and its weakness is the expected push toward inflation not only by the Fed but also government policy. In addition, the US economy is still trying to emerge from the Coronavirus crisis. Deflation has been looming in every corner and now the markets actually want to see inflation... who would have expected that. What's interesting, however, is that even after record stimulus and inflation expectations by the Fed, is that just by looking at the chart above, you can see that Dollar is still nowhere near its recent lows. These lows include:
• The end of the Dotcom Crash in 2002-2003
• The great financial crisis in 2008-2009
• And even the 2011-2013 Eurozone crisis that pushed its strength upward
The Dollar was actually lower during all three of these moments. So think about how strong the dollar has actually remained to still be above those three key financial events. Wow.
One other important note to add to this goes as follows: US equity markets continue to rise, US tech companies are doing innovative things, and businesses are starting to churn out profits while also tapping cheap credit markets. We may see an M&A boom if this trend continues. It is hard to bet against this kind of money flow, even with inflationary expectations, the bullish aspect is the business side of things, the innovation, and growth. Additionally, as unemployment returns and businesses begin hiring again, the Dollar may actually shock everyone. Perhaps it's poised to rise.
But the core point of this thinking and chart notes above is as follows:
For how much weakness the Dollar has seen, for how much news it has garnered, one thing remains fascinating... it's actually not *that* low relative to other momentous moments in market history. It's actually held up rather well considering the size and impact of the events before us.
I was bearish early on, but now I am starting to change my view. I think it will chop sideways for the next year with a possibility toward rising or even having a bullish bias. Thanks for reading!
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