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

Elizabeth Warren © Sean Rayford/Getty Images

"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.

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".

Recommended

The charts that matter: growth stocks continue their slide
Global Economy

The charts that matter: growth stocks continue their slide

As the US tech stocks and the dollar fell further this week, here’s what happened to the charts that matter most to the global economy.
15 Jan 2022
US inflation is at its highest since 1982. Why aren’t markets panicking?
Inflation

US inflation is at its highest since 1982. Why aren’t markets panicking?

US inflation is at 7% – the last time it was this high interest rates were at 14%. But instead of panicking, markets just shrugged. John Stepek explai…
13 Jan 2022
Bitcoin’s new year is off to a bad start – what does the rest of 2022 hold?
Bitcoin & crypto

Bitcoin’s new year is off to a bad start – what does the rest of 2022 hold?

Bitcoin has had its worst-ever start to a year. But it remains the “future of money”, says Dominic Frisby. Here, he looks at what might come next for …
12 Jan 2022
The charts that matter: markets start the year with a crash
Global Economy

The charts that matter: markets start the year with a crash

As markets start 2022 with a big selloff, here’s what happened to the charts that matter most to the global economy.
8 Jan 2022

Most Popular

Five unexpected events that could shock the markets in 2022
Stockmarkets

Five unexpected events that could shock the markets in 2022

Forget Covid-19 – it’s the unexpected twists that will rattle markets in 2022, says Matthew Lynn. Here are five possibilities
31 Dec 2021
Which investment trusts performed the best in 2021?
Investment trusts

Which investment trusts performed the best in 2021?

Shivani Khandekar runs through the top ten investment trusts of 2021 – and the worst performing trusts – and looks ahead to 2022.
7 Jan 2022
The booming jobs market points to inflation lasting for longer
Economy

The booming jobs market points to inflation lasting for longer

It’s a good time to be looking for a job, with plenty of vacancies and wages rising. But higher wagers are driving inflation up – and it’s not just a …
11 Jan 2022