Currency Corner: the US dollar is the one to watch for 2020

Markets have been in two minds about the US dollar. But that could soon change, says Dominic Frisby. And it may have some big surprises in store for 2020.

Donald Trump and Jerome Powell © Getty Images

There is a tug of war going on between Donald Trump, who wants a weaker US dollar, and Jerome Powell

Today, in what is the final Currency Corner of the year, I wanted to look at the price action of the most important currency of the lot the US dollar.

I've got a feeling that the US dollar could be a big story in 2020. I've got no evidence for that it's just a hunch. It's been too quiet for too long. And the price of the US dollar to an extent determines the price of everything else.

If the dollar is weak, US assets, especially equities, will look that much more attractive to overseas investors, and there will be scope for these markets which for the most part are already trading at all-time highs to go even higher.

If the US dollar is strong, that does not necessarily mean that US equities will fall, but it does mean that any upside will be more limited.

Rising US equities, and the feelgood factor generated, is likely to lift other indices worldwide.

Similarly, a cheaper US dollar will help commodities as well, especially precious metals. I still maintain that the great commodities bull market of the 2000s was as much a "falling US dollar" story as it was a "China growth and lack of supply" story.

In short, it's important.

Politically, there is a tug of war going on. On one side, there's US President Donald Trump, who very much wants a weaker dollar. And why wouldn't he? Few politicians care about maintaining the purchasing power of their currency. They want to levy the inflation tax while pointing to higher asset prices as evidence of their success.

On the other side is the head of the Federal Reserve Bank, Jerome Powell, who on the face of it at least, is less inclined to pursue the expansionary monetary policies that his president so hankers for.

The US dollar index measures the dollar against a basket of currencies the US's main trading partners, basically. The story of the 21st century has basically been, highs at 120 in 2001, followed by lows at 71 in 2008 (shortly before the crash). Those lows were retested in 2011, after which there followed a bull market which peaked at 103, with the election of Trump.

Trump's first year saw a pullback, but his second saw something of a rally. Trump's third year, 2019, saw the index begin the year at 96, and here we are 12 months later, with the index still at 96. It's been up a bit and down a bit, but has essentially gone nowhere.

Of note, however, is that the index has been falling since the autumn, when it made a double top at 99. In the short to intermediate term, at least, we are in something of a downtrend.

But today's price of 96 is pretty much slap bang in the middle of that long-term range 120 on the upside and 71 on the downside. Similarly, so many currencies be they Asian or European seem to be trading against the dollar somewhere in the middle of their long-term ranges.

Sterling is one of the exceptions to this $1.50-$1.60 would be more of a middle-of-the-range price.

In other words, wherever you look, whether it's at the price, the price action, the politics or even the economics, there is ambivalence.

I would expect that ambivalence to continue into the first few months of 2020 at least.

But I wonder if after that the US dollar has some surprises in store.

Merry Christmas everyone. Here's to pot loads of money in 2020.

Dominic's new book Daylight Robbery: How Tax Shaped Our Past And Will Change Our Future, published by Penguin Business, is available at Amazon and all good bookshops. Audiobook at Audible.co.uk. Signed copies are available at dominicfrisby.com

Recommended

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The charts that matter: the dollar extends its fall
Global Economy

The charts that matter: the dollar extends its fall

The US dollar took quite the tumble this week. Here’s how the charts that matter most to the global economy reacted.
17 Apr 2021
The US dollar will soon start to slide
Currencies

The US dollar will soon start to slide

The US dollar enjoyed its best quarter since 2018 in the first three months of this year, driven by higher US Treasury bond yields. But the period of …
16 Apr 2021
Bitcoin mania: private currencies are nothing new
Bitcoin

Bitcoin mania: private currencies are nothing new

The idea is gaining ground that bitcoin and the plethora of other new currencies are here to stay. But the existence of private currencies operating p…
15 Apr 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021