The popular narrative about the dollar — that it is on a greased banana peel skidding downhill — has been pretty well verified by price action of the dollar versus the euro and other major foreign currencies this year. The more extreme adherents of this view suggest that the dollar is doomed because of U.S. government debt and other indicators of decline and decay. I have never shared the long-term dollar doom and gloom viewpoint, but I do believe that very low short-term interest rates and other government policies have definitely hurt the dollar.
Now, despite all those concerns, there appears to be a reversal rally underway.
In this post and the accompanying chart, the good folks at Bespoke point to a recent trend:
…As shown below, the recent action in the Dollar looks a lot like the start of the rally that occurred in the second half of 2008. In late July/early August of last year, the Dollar gained a quick 5% out of the gate when it broke a multi-year downtrend. The currency went on to gain 25% over the next 7 months…
Source: Bespoke Invest
A very weak dollar helps our export manufacturers, but it is hard on importers as well as consumers. It is also just wrong.
Currency values have always fluctuated a bit and that’s fine. But, we need to adopt permanent policies that help promote a sound and solid dollar. Doing so will be a critical factor in long-term economic recovery. Having a sound dollar would also make long-term investment and asset allocations decisions easier. Let’s hope this trend continues.
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Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.
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