A puzzle is "preoccupying the world's currency dealing rooms", says John Authers on Bloomberg. The global economy is beset by tariff wars and political instability, yet we are living through "unusually low foreign-exchange volatility". The US dollar has not had a weekly swing of more than 2% against other developed-market currencies for two years. The last time this happened was in the mid-1970s. A market truism is that "financial stability generates instability". This period of curious tranquillity might "portend a new long-term trend": the arrival of a weaker US dollar.
The end of the trend
The stars are aligning for a weaker dollar, agrees Louis-Vincent Gave of Gavekal Research. The Federal Reserve is back in easing mode. A US-China trade truce could stoke risk appetite and encourage investors to venture out of dollar assets. In America, the bursting of the start-up "unicorn bubble" and talk of a left-wing Democratic presidential candidate are also bearish for the greenback. A weaker dollar would be good news for the world economy. It would mean cheaper financing costs for companies in emerging markets. It would also help US exporters and boost corporate earnings.
Time to take out insurance
"De-dollarisation" is already afoot, says Rana Foroohar in the Financial Times. China is doing more business in euros and recently issued euro-denominated bonds. Deglobalisation is upon us and history shows that "asset-price collapses" in the country associated with the "old order" usually follow. "No wonder gold bugs abound." (See page 14.)
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