The Dollar's Rebound Is More Mystery Than Economics
Exchange rates are intrinsically more difficult to forecast than most other economic or market variables.
Looking up.
Photograph: Bloomberg
The dollar is staging a comeback. Pundits are out in full force, suggesting this might finally be the end of its recent weakness and the start of a strengthening trend they have been predicting for more than a year. They may be right, but in my career spanning more than three decades in finance, I’ve learned that nobody really knows what moves currencies.
The Federal Reserve began increasing interest rates in earnest early in 2017, while the European Central Bank and Bank of Japan kept their accommodative pedals firmly to the metal. But instead of appreciating, as the experts predicted, the dollar plunged almost 20 percent against the euro and 10 percent against the yen in the ensuing 12 months. Little wonder most currency prognosticators were left scratching their heads.