We’ve posted a few items about the dollar recently (See this and this). the recent counter-trend strength in the buck is what has roiled commodity markets as well as equities.

Today’s NYT has an article that on a possible greenback rally, Some See Rise Ahead for Dollar:

“Could the long dollar slide be over?

For the better part of the past decade, and particularly in the last few months, the American dollar has been the 98-pound weakling of the foreign exchange world. It has lost value against almost every other global currency — not just the euro, pound and yen but even the Romanian new leu and the Latvian lats.

Driven largely by the Federal Reserve’s policy of printing dollars to help spur a healthy economic recovery that remains stubbornly elusive, the dollar, weighed against a basket of other currencies, hit a 40-year low this month.

But betting against the dollar may no longer be such a safe play — not necessarily because of any sudden macroeconomic shifts but because of a sense that the long dollar sell-off may have finally gone too far. Since May 4, the dollar is up 4 percent against the euro and 2 percent against the pound, while rallying against the Romanian and Latvian currencies as well.

In light of the article, let’s take another look at a few Dollar charts:

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US Dollar Swings

click for larger charts

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Dollar vs Major Currencies

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Previously:
Dollar’s Biggest Decline? 2001-08 (April 23rd, 2011)

The value of the dollar: Five factors for investors (Washington Post, April 23, 2011)

The US Dollar, Annotated (April 29th, 2011)

Source:
Some See Rise Ahead for Dollar
LANDON THOMAS Jr.
NYT, May 17, 2011  
http://www.nytimes.com/2011/05/18/business/global/18dollar.html

Category: Currency, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “U.S. Dollar Index Components & Swings”

  1. [...] Can the US dollar countertrend rally continue?  (Big Picture) [...]

  2. DL says:

    Personally, I think there’s too much emphasis on the strength of the USD versus the Euro and the Yen, and not enough on the strength of USD versus commodities.

  3. SpottyDog says:

    So can someone explain two questions I have.

    1) The quote says that the dollar index hit a 40 year low this month. But the chart shows lows well below this month in early 2008. Am I misreading something? Is the quote just wrong?

    2) Forgive me for not being much of a chartist and being able to answer my own question, but I’m wondering what that dollar index chart shows in terms of predicting the future. Why does that chart predict that we are going up? (Or maybe it doesn’t) Can someone explain that a bit.

    Thanks,

    Spotty

  4. Ny Stock Guy says:

    Chart two is such a sad little chart.

  5. Bernie X says:

    Especially since the Fed has NOT “printed” dollars.

    M3 is at the same level as Feb 2008.

  6. icm63 says:

    Folks, the US Dollar has a powerful cycle within it, and its due for an upswing. The bullish fundamentals will page 1 headlines, move up from page 10.

    Seriously, do you think the euro zone has ALL the apples all in the barrell ! I agree with Felx Zuluaf the Italians will rock the euro next !

    see first chart

    http://www.readtheticker.com/Pages/Blog1.aspx?65tf=205_cycles-say-the-bears-are-about-to-roar-2011-05

  7. Petey Wheatstraw says:

    With our public and private debt levels, a relatively strong dollar (relativity to other fiat currencies/monetary systems being all that matters in this context), will kill us. Not saying it won’t happen, just that if it does, all of our real assets and resources, public and private, will be on the block at fire sale prices and our debt holders/creditors will be sucking that stuff up WHILE continuing to issue new debt in ever increasing amounts at ever increasing interest rates. Strong dollars returning home (they won’t be coming after labor or finished goods), will be the new third rail of US politics.

  8. Ted Kavadas says:

    The recent upswing in the U.S. Dollar, IMHO, is a “bounce” – it will not prove sustainable.

    Unfortunately, I have seen very little, if anything, to believe – either from a fundamental or technical perspective – that the long Dollar slide is over.

    One important facet of this declining Dollar that I find most disconcerting is the arguments being made that the decline is, and will prove to be, beneficial and/or something not to be unduly concerned about. I recently wrote a post on this issue; here is the link for those interested:

    http://economicgreenfield.blogspot.com/2011/05/wildly-sanguine-views-of-us-dollar-drop.html

  9. RW says:

    I sure hope that analysis is wrong: A cheaper dollar is good for Main Street, the majority of US citizens and the US economy generally. Yeah, our dependence on subsidized oil/gas will make a cheaper dollar sting but commodities otherwise only comprise about 6% of finished product price on average so the tradeoff will be worth it.

    Increased advantage in exports and an improved current account are often mentioned as benefits of a cheaper dollar but Yglesias at http://tinyurl.com/69dbk56 succinctly lays out two key features WRT recession that are rarely discussed (excerpts here but the whole article is not long):

    “The two important features about a cheaper dollar as a response to a recession are that everyone has dollars and debts are denominated in dollars. …Allocating [losses] through explicit labor-management bargaining, explicit legislative bargaining, etc. is a very clumsy and time-consuming effort. …”

    1. “A cheaper dollar spreads the losses and does so quickly and immediately. People who are left underpaid in real terms by this process are then in a position to bargaining for higher nominal wages, which is a much less demoralizing scenario than trying to implement nominal wage cuts.” …

    2. “Americans who owe money typically owe dollars. When the dollar gets cheaper, that reduces the real quantity of goods and services that need to be produced to work off the debt and shortens the span of time until we’re out from under it and can return to normal.”

  10. DL says:

    RW @ 4:42

    “…but commodities otherwise only comprise about 6% of finished product”

    ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

    I don’t know if that 6% figure is accurate or not, but a lot also depends on what the Chinese decide to do with their currency exchange rate over the next several years.

    Also the impact of higher energy prices on the ordinary J6P should not be understated.

  11. RW says:

    @DL

    I’ve read that 6% figure in several places but can’t put my finger on a good cite at the moment. It was an average but of course that can be misleading if the range is wide; e.g., if prices of many non-discretionary items are at the top of the range and discretionary mostly at the bottom then a higher rate of increase in raw materials is going to hurt a lot more people.

    Not as concerned about China: They’ve been successfully exporting deflation (lower cost goods) and importing inflation (sterilizing foreign exchange payments for those goods) for nearly two decades so RMB must appreciate but with capital controls still in place they can prevent the rise from being too destabilizing I think. I certainly hope so; hyperinflation in China would do no one any good.

    Agree about energy prices: There’s real danger there. Sure wish the country hadn’t blown ‘ol Jimmy Carter off when he proposed a national energy policy back in ’77, we’d be in the catbird seat now.