Is the Dollar’s Run Fading?

Wednesday, February 15, 2017 |

The dollar ebbs and flows versus other currencies, but since 2011 has been up nicely:

Source: FRED

When looking at the above chart, it looks like: the dollar moved up from 95 to 02 (7 years), then down from 02 to 09 (7 years), sideways from 09 to 11 (2 years), then up from 11 to 16 (5 years).  While the sample is small to draw much of a conclusion, a 7-year cycle would put us closer to the end.  Further, most of the larger moves happened earlier on in the cycle.

At this point the dollar looks expensive versus other currencies (EM currencies = Emerging Market Currencies):

Source: JP Morgan

While subjective, I also contend the Fed has one of the clearer paths to tightening moving forward and if you count QE has been tightening for some time.  If this is the case, such moves (higher interest rates = higher USD in theory) are likely priced into USD already. 

And for what it’s worth, the President also hinted the dollar was too strong.

None of this means the dollar will fall overnight.  Just that there likely isn’t much juice left in the squeeze.  In the next post, I will outline potential portfolio implications.

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