The U.S. Dollar Is King But It Commands Too High a Premium
What will it take to take it down a bit? Reason and the natural forces of foreign exchange, inflation and interest rates don’t seem to work. At least so far.
Don’t need to be bling to be king.
Photographer: Bloomberg/BloombergIn times of uncertainty and stress, the U.S. dollar is the world's safe haven currency. But its continual ascent over this quarter may no longer be justified by economic fundamentals. The greenback is now overvalued.
The dog days of summer are often illiquid because trading volumes drop when people go on vacation; and the season is also subject to bouts of panic when the holiday calm is shattered by the inevitable surprise news event. This August's menu of woe includes the spread of the delta variant globally and the dash of fear that the pandemic recovery, which we seemed to be on the verge of, is actually dipping into a long drawn-out plateau. This noxious combination is keeping a firm bid under an already fully-priced dollar.
Meanwhile, the Federal Open Markets Committee is making noises that its monthly $120 billion bond buying program might be dialed down in the next few months. The perpetual worry among investors around the world is that stimulus may be withdrawn before the U.S. economy (on which everyone is somehow dependent) is fully self-sustaining. It’s no surprise they think it best to head for the safety of the greenback, where they can sit out the imagined storm.