The dollar is falling! The dollar is falling!
Turkey-lurkey told Henny-penny that the sky is falling. But someone heard wrong and the dollar started to fall. That’s the story coming from the New York times.
Foreign governments buy dollars with their trade surpluses for many reasons: it’s a safe place to sock away a surplus; dollar purchases keep their currencies lower; and storing their reserves in dollars avoids any large foreign exchange transactions. If they sell their dollars, some worry that interest rates will rise and a falling dollar will add to inflation.
But why would they sell? If they need to make investments, US imports are a symptom of domestic demand, not weakness. Investing in a stable, high-growth economy makes the dollar the best game in town. So central bank reserves continue to be parked here.
Foreigners continue to buy dollar-denominated assets aggressively. Since the dollar has fallen, those assets are even cheaper. There’s no fundamental reason why we should listen to Chicken Little. Yet.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!
Follow me on Twitter @GlobalMarketUpd