DOLLAR’S SURPRISING STRENGTH COULD HOBBLE RECOVERY

With the dollar steady through late 2020, while down today, its value has grown 2 percent this year against the collection of major foreign currencies measured by the ICE Dollar Value Index.
A strong dollar could dampen a global economic recovery, making U.S. products more expensive abroad and damaging emerging nations’ ability to repay dollar-based debt.
If the dollar “snaps and strengthens suddenly, we could see an emerging-market selloff,” Salman Ahmed, global macroeconomist at Fidelity International, told the Wall Street Journal.
The general analyst’s consensus was for a 20-percent slide for the dollar after last November’s presidential election; instead, the buck lost only 3.3 percent, settling at its 5 January low of 89.44 and since climbing back above 92.
The buck has gained 4 percent on Japan’s yen this year and 5 percent on the French franc, a typical shift when investors have a greater appetite for risk, analysts say.
The dollar also has risen 1.7 percent on the euro, blunting the euro’s advantage in an economic recovery.
“Europe is not as healthy as the U.S. because the vaccine rollout [in Europe] is going badly,” Ken Veksler, chief investment officer of Accumen Management, told the Wall Street Journal.
Europe has vaccinated only 8 people in every 100, while the U.S. has jabbed 24 and the U.K. 32, according to Our World in Data. Considering the media and Wall Street selling an economic recovery that is COVID vaccine-related, a slower vaccine rollout will delay countries’ decisions to reopen their economies.
The dollar’s newfound strength also could be powered by rising bond yields: rates on 10-year U.S. Treasuries have shot up half a percent this year, a better gain than most other countries can offer, making dollars a more attractive place to store value.
Higher U.S. yields, however, typically bring financial constraints elsewhere around the globe.
U.S. equity markets have shown no concerns about the dollar’s possible shadow over the recovery’s short-term inevitability; share prices continue to soar higher on the expectation of a robust turnaround this summer.
TREND FORECAST: Considering the massive amount of stimulus injected into the U.S. economy, the $28 trillion national debt level that keeps growing, and the zero-interest-rate policy… until those trends are reversed, we maintain our forecast for a weakening dollar throughout the year.