What ails "King Dollar"
The article "What ails 'King Dollar'" discusses the US dollar's dominant status as the world's reserve currency, explains factors influencing its value such as interest rates, inflation, and political stability, and highlights recent near-term weaknesses driven by unprecedented US deficit spending, improving COVID-19 conditions abroad, and China's economic rebound.
🎟 Don't Miss Our Limited $849 Ascent Offer — Save $350 With Code ASCENT27EB. Register Now →
What ails "King Dollar"
Wealth Management
August 3, 2020
August 3, 2020 10:17 AM
Share: Facebook Twitter LinkedIn Email
We live in a world where the US dollar dominates – meaning more trade and financial transactions use it and more are held by global central and commercial banks than any other currency. Simply put, the US dollar is the world’s reserve currency and our country’s ability to print it is – as former French Finance Minister Valery Giscard d’Estaing put it – an “exorbitant privilege.”
While no other currency is likely to knock “King Dollar” off its throne anytime soon, the greenback can and does move down in value relative to other currencies. The US Dollar Index/DXY compares the value of the US dollar to a weighted basket of six currencies used by US trading partners, and it has recently traded to a two plus year low. Historically, the long-term factors impacting the value of one currency versus another include interest rates, inflation, economic growth, government debt and deficits, and political stability.
If we were to point to catalysts for the near-term weakness in the dollar, they would include unprecedented US deficit spending, more encouraging (on balance) COVID-19 data outside the US, a dramatic bounce back in China’s economy, the strong EU fiscal response to COVID-19, US social unrest, and the upcoming US Presidential election (and the associated uncertainty it brings to US fiscal policy). Maybe more important than the causes of currency weakness are the investment implications of a declining dollar, which has historically been a headwind for traditional fixed income and a tailwind for commodities, as most are priced in US dollars – so as it moves lower, they move higher in price. Equities too experience this tailwind, particularly developed international and emerging market equities, as well as those US companies with meaningful ex-US revenue streams, as those sales are worth more once converted into a depreciating US dollar.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.
Tagged: weekly wire, market perspectives, Tim Holland, 2020 election, US dollar, COVID-19
Copy link
âś“
Thanks for sharing!
Find any service
A2A