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

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
Of course bitcoin is a bubble – a bubble you can’t ignore
Bitcoin

Of course bitcoin is a bubble – a bubble you can’t ignore

Bitcoin’s wild ride is being called a bubble by many. And it is, says Dominic Frisby. But that’s not necessarily a bad thing. And it’s a bubble in whi…
13 Jan 2021
The charts that matter: the dollar bounces, bitcoin soars, Tesla roars
Global Economy

The charts that matter: the dollar bounces, bitcoin soars, Tesla roars

As bitcoin and Tesla go stratospheric and the US dollar rebounds, John Stepek looks at the charts that matter most to the global economy.
9 Jan 2021
Here’s why you should pay attention to the Chinese yuan
Currencies

Here’s why you should pay attention to the Chinese yuan

The Chinese yuan is at its strongest level for over two years – and a strong yuan means higher inflation. That’s something you need to prepare for, sa…
5 Jan 2021

Most Popular

Of course bitcoin is a bubble – a bubble you can’t ignore
Bitcoin

Of course bitcoin is a bubble – a bubble you can’t ignore

Bitcoin’s wild ride is being called a bubble by many. And it is, says Dominic Frisby. But that’s not necessarily a bad thing. And it’s a bubble in whi…
13 Jan 2021
A simple way to profit from the next big trend change in the markets
Investment strategy

A simple way to profit from the next big trend change in the markets

Change is coming to the markets as the tech-stock bull market of the 2010s is replaced by a new cycle of rising commodity prices. John Stepek explains…
14 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021