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Decade Long Uptrend Of The Dollar At Risk

Uptrend Dollar
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EDITOR NOTE: The dollar has been gaining ground over the last decade. But looking at the dollar index over multiple decades, it’s also been losing ground, subject to wide fluctuations that, overall, average out to long periods of flatness. That’s the case when you consider only fiat. Now, overlay gold on top of that chart and you get a different picture. Starting from 1986, the dollar sits at -23.28% currently, while gold’s at 451.94%. Big difference when comparing the dollar  against other fiat currencies versus gold. Is the dollar, as the article cites below, the “ultimate safe haven’?

(Bloomberg) -- The slump in the dollar is threatening to bring to an imminent end its near-decade-long uptrend against major peers.

Deutsche Bank’s Trade-Weighted Dollar Index -- a gauge of the currency against the U.S.’s most-important trading partners -- has fallen to test the trendline in place since 2011, a break of which would be an important signal for dollar bears. The index has dropped more than 1% so far this month amid weakening demand for havens, an ongoing rally in risk assets and a shift in sentiment toward currencies like the euro and yuan.

Dollar strength has been a feature of much of the last 10 years. The trade-weighted basket climbed over 40% from the 2011 low to its recent peak in March, at the height of coronavirus fears. Yet a growing chorus of commentators is calling for the currency to decline, as the global economy attempts to recover from the impact of the pandemic.

“You’re likely to see a situation where the euro zone and indeed Asia will be able to re-open and are re-opening their economies at a faster pace than we’re seeing in the U.S.,” said Peter Kinsella, global head of forex strategy at Union Bancaire Privée. “Normally we find that the dollar tends to weaken during periods of global economic recovery.”

The ICE U.S. Dollar Index -- another gauge of the currency -- is expected to weaken about 2% to 94.1 by the second quarter of next year, according to an analyst survey compiled by Bloomberg. It traded around the 96 level Thursday.

“Improving domestic economic trends in the euro area and China, as well as our rising conviction in structural dollar weakness over time, reinforce our view that the dollar is poised to weaken against these major currencies,” wrote Goldman Sachs Group Inc. strategist Zach Pandl this week.

The trade-weighted dollar index steadied just above the trendline Thursday, after a slump in Chinese shares led global risk assets lower, reminding investors of the currency’s haven status.

“The dollar remains the ultimate safe haven,” said Credit Agricole SA strategist Valentin Marinov. “A return of risk aversion later in the year on the back of global growth concerns, escalating geopolitical tensions between the U.S. and China as well as other triggers like a no trade deal Brexit could burnish its appeal.”

(Adds dollar performance Thursday, Credit Agricole comment in last two paragraphs)

Originally posted on Yahoo! Finance

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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