Advertisement

The US dollar looks set to become a lot weaker

Many in the US and abroad would welcome a weaker dollar. And they might just get it.

Elizabeth Warren © Sean Rayford/Getty Images
Elizabeth Warren: bad news for the dollar

"Amid the noise and division of 2019," the world's "single most important" price has remained remarkably stable, writes John Authers on Bloomberg. The US dollar is almost "exactly where it was when Donald Trump was elected president" and has been riding high relative to other currencies since 2015.

The dollar is the dominant currency in international trade and finance, note Eva Szalay and Colby Smith in the Financial Times. The price of the dollar is "the key driver for monetary policy elsewhere, particularly in emerging markets" (see page 5). A strong dollar means tighter monetary policy worldwide.

Advertisement - Article continues below

That is why many in the US and abroad would welcome a weaker dollar, says Authers. It would make US exports more competitive globally a cherished goal of the Trump administration. In emerging markets, companies that have borrowed in dollars, but have to repay the loans from revenue earned in local currency, would find their debt loads easier to service.

There are plenty of reasons to think this period of dollar strength could indeed come to an end, says Will Denyer of Gavekal Research. Blockages in the overnight "repo" market have prompted the Federal Reserve to restart money printing at a faster pace than central bankers in Europe or Japan, though they don't want to call it "quantitative easing". The Fed is also easing interest rates, reducing the appeal of dollar-denominated assets.

Finally, the rising odds on a left-wing Democratic presidential candidate Elizabeth Warren is emerging as a frontrunner is also bearish for the dollar. More regulation would eat away at America's competitiveness and hence the appeal of its currency. Currency markets are unpredictable beasts, but on current trends "the US dollar looks set for a pronounced weakening".

Advertisement
Advertisement

Recommended

The currencies to bet on this year
Currencies

The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020
Turkey’s next currency crisis approaches
Currencies

Turkey’s next currency crisis approaches

The Turkish lira is down by 14% against the dollar this year and has been trading above the ₺8/€1 level for the first time in two years. 
7 Aug 2020
The US dollar is ripe for sharp depreciation
Currencies

The US dollar is ripe for sharp depreciation

The US dollar – usually considered a traditional “safe haven” refuge – suffered its worst monthly performance in nearly a decade last month as risk-av…
7 Aug 2020
Can the recent rally in sterling continue?
Sponsored

Can the recent rally in sterling continue?

A "double top"  – a very recognisable pattern – is forming in in the US dollar. Dominic Frisby explains what it is, and what it could tell us about st…
3 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020