Expect the Weak Dollar Trend to Return
The greenback’s fall has enjoyed a temporary respite. But the forces against the currency look set to reassert themselves.
Stay focused on Fed Chair Jerome Powell.
Photographer: Bloomberg/BloombergIt was meant to be the no-brainer trade of 2021: Keep selling the dollar on a big-spending Joe Biden presidency. The money-printing required to fund U.S. stimulus would heap pressure on the greenback, reinforcing a market dynamic at work since March. Now the Democrat “blue wave” has happened, why has the dollar actually rebounded slightly?
The shock storming of the Capitol on Jan. 6 turned the greenback on a dime: The dollar acts a safe haven during periods of turbulence, even when they are happening in the U.S. That said, equities have remained strong and have touched fresh highs undeterred by politics. The bigger yield premium for U.S. bonds versus foreign debt may also be creating demand for dollars from overseas buyers, notably Japanese funds.