The Dollar Is Losing Its Mojo at the Wrong Time

What’s wrong with the dollar? Barely two weeks ago the Bloomberg Dollar Spot Index reached its highest since June 2017. President Donald Trump tied the strength to confidence in the U.S., boasting in a tweet on Aug. 16 that “money is pouring into our cherished DOLLAR like rarely before.” But since then the greenback dropped as much as 2.2 percent, reaching its lowest of the month on Tuesday before recovering to end the day slightly higher.

At a time when the U.S. is embarking on a borrowing binge to pay for trillion-dollar federal budget deficits, any weakness in the currency should concern the government. After all, foreigners might have second thoughts about lending money to the U.S. if they expect the dollar to depreciate. That could cause borrowing costs to rise regardless of whether the Federal Reserve raises interest rates or not. NatWest Markets strategist James McCormick has identified six primary reasons for the dollar’s recent downturn, ranging from Trump’s recent criticisms of the Fed’s tighter monetary policy to moves by China to keep its currency from getting any weaker. But perhaps the most intriguing reason is the notion that U.S. economic growth has peaked and will only slow. Although McCormick noted in his report dated Aug. 25 that the U.S. economy is in good shape, a growing number of strategists are starting to point to data showing reports coming in softer than forecast.