Daily Spotlight

Dollar Back Near Peak

The dollar spiked early in the pandemic, as global investors flocked to the security of assets denominated in greenbacks. Indeed, the dollar in 2020 surpassed cycle highs set initially in 2001-2002 and then again in late 2016. After peaking in April 2020, the greenback declined until 2021. But in 2022 -- in the wake of the Russian invasion of Ukraine and renewed COVID concerns in China and Europe -- the dollar has again approached cycle highs. Currently, on a real trade-weighted basis, the dollar is 15% above the average valuation over the past 20 years, down only slightly from a 17% overvaluation at the April 2020 peak. The fully valued U.S. currency reflects several factors, but primarily the relative strength of the U.S. economy and investor confidence in the U.S. Federal Reserve and Department of Treasury. We anticipate a trading range around current levels for the greenback for the balance this year. That's because we think U.S. GDP will start to cool from the white-hot rate of 2021. What's more, with interest rates headed higher as the Fed addresses inflation, investors may be selling dollar-denominated Treasuries. Lastly, the lofty current valuation of the greenback implies that other currencies -- and even gold or other commodities -- are possibly undervalued. Traders can be expected to bid up those values over time. ...  is 15% above the average valuation over the past 20 years, down only slightly from a 17% overvaluation at the April 2020 peak. The fully valued U.S. currency reflects several factors, but primarily the relative strength of the U.S. economy and investor confidence in the U.S. Federal Reserve and Department of Treasury. We anticipate a trading range around current levels for the greenback for the balance this year. That's because we think U.S. GDP will start to cool from the white-hot rate of 2021. What's more, with interest rates headed higher as the Fed addresses inflation, investors may be selling dollar-denominated Treasuries. Lastly, the lofty current valuation of the greenback implies that other currencies -- and even gold or other commodities -- are possibly undervalued. Traders can be expected to bid up those values over time.   more

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