Has the rally in the dollar run out of steam?
The US Dollar has been on a roll. Over the past year the trade weighted dollar has risen 25 percent. The strong dollar has depressed exports, retail sales, industrial production, corporate earnings, and a host of other factors. The combination of tighter money here and aggressive QE in Europe and Japan have raised the dollar’s value significantly, after three years of little change.
But lately a bit of the bloom has come off the rose. Interest rates have risen slightly in Europe and the growth of our economy stalled in the first quarter. Japan’s economy hasn’t taken off, but it isn’t falling into a recession, either. Many investors who expected a one-way trade of dollar-strength and euro-weakness have been caught leaning the wrong way. Over the last month the greenback has pulled back 10%.
Speculative markets work to make as many people look as foolish as possible as frequently as possible. If you think you’ve found their key, they’re about ready to change the locks.
Douglas R. Tengdin, CFA
Chief Investment Officer
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