Looking at the scale of a few years, the dollar has been insanely overvalued post-COVID.
Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point. Recently it's been bouncing around at nearly 1 euro=1 dollar.
Then there's the yen. Used to bounce around between 1 dollar = 100~110 yen. Recently reached 1 dollar = 162 yen.
The dollar losing its value is a return to the pre-covid norm. Lots of countries pumped money into the US to make money off skyrocketing stocks and high interest rates, and now they're pulling it back into their countries. It's a high that can't last forever. And if it did last forever, that would not be good for the world as a whole since it would mean every country is supporting the US at the cost of devaluing themselves.
> the dollar has been insanely overvalued post-COVID.
That's an odd way of saying the US doubled it's federal budget from $3T to $6T in response to COVID and has now ensconced this pork further into law. Under a "republican" administration, no less.
> The dollar losing its value is a return to the pre-covid norm.
Which is to say that even $3T contained an unjustified amount of debt spending just not as obscene as it is today.
Are you under the impression that this is surprising? Republicans are consistently the ones spending more when they are in power. It's time to dispel this myth that they are fiscally "conservative", they have presented more unbalanced/defficitary budgets than Democrats and the latter in recent memories are the only ones who managed to present budget with surpluses, under Clinton.
> Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point
That's what inflation does.
People are routinely taught that inflation is the “decline of value of money”, but that's not the reality. Inflation is just the increase in consumer price, which is perceived as a decline in the relative value of the money, but its absolute value on foreign markets isn't (directly) affected by inflation.
And when the Central bank raise the interest rate to cool the economy down and temper inflation, then the absolute value of the money rises (because the higher the interest rates, the pricier the currency on the FX market). This increase in the currency value in turn also helps fighting inflation because it lowers the cost of imported goods.
So, indirectly, because of the central bank's reaction, inflation is actually increasing the absolute value of money, and this is what we saw in 2022 when the Fed raised the interest rates 9 month or so before the ECB start doing the same (because the inflation came in advance for the US compared to EU).
Not when you get to the point where your currency is so devalued that importing raw materials necessary for those exports becomes expensive, and basics like food and fuel become unaffordable for locals, as is the case in Japan.
A balance is necessary, and things have been off balance recently.
Donald Trump has stated that he wants to weaken the dollar. It seems that he is succeeding.
My guess is that he wants to make it more attractive when it comes time to refinance the large portion of American long-term debt. He also wants to keep the interest rates low for the same reason.
My questions is: What is causing the actual slide? The concrete mechanics and motivations that are causing people to sell USD.
Devaluing the dollar is 100% the goal. It's literally noted as a key component in what the people running US trade policy now said they wanted to do, before joining government.
It has the side effect of boosting nominal investment value (even if real value stays flat or decreases), maintaining political support from people who can't do math. The numbers continue to look good, but outcomes worsen.
There are two flies in this ointment: international capital response and inflation.
The latter is why Trump has been spending political capital on demonizing the Fed and Powell. The house of cards collapses if actual inflation bites and reveals the game.
As to the former, it's tough to look at the situation and see US debt / equities as attractive as they once were:
1. Unsustainable US budget deficits
2. Political threats against the US central bank
3. Tariffs
4. Decreased immigration and worsening demographics
Lower than their 2024 peak, but still much higher than before 2022 where for a long period it was at 0% or even negative interest (apparently, I don't know much about these things). It's at 2% or 2.4% at the moment, last time it was around that was in 2008. See https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
But I'm no economist and don't know what these numbers mean or what the consequences are.
Which would mean that the Euro would depreciate significantly against the dollar under normal circumstances.
Yet the Euro increased by > 10% despite the ECB cutting the rates quite significantly. Imagine how low the dollar would go if the Fed listened to Trump and cut to 1%..
Those evil bastards are also most central bankers around the world that agree that the incredibly unbalanced balance of trade today needs to be rebalanced. America is consuming too much, and the world is saving too much. So yes, your living standards do need to go down for the sake of the greater global macroeconomic stability.
Contrary to what xkcd or NYT might tell you, actual economic institutions like the IMF and the World Bank are coigzant of the issues caused by the status quo and largely view the Trumpian diagnosis, if not the horrid execution, as correct.
This is spot on and cuts both ways. Much of the Japanese market's recent "performance" in US media is actually just yen weakness against the dollar. Strip out currency effects and the story looks very different. Same with European markets "performance" - we're often seeing monetary policy divergence rather than genuine outperformance in foreign markets.
Always check both local currency and USD returns when evaluating international markets.
Not in Australia. Our dollar has taken a beating too. I guess digging holes and selling property to each other at ever higher prices isn’t that interesting to the rest of the economic world.
Australia printed a lot more money relatively than the US from COVID-19 until now, largely to capitalize on a booming commodities sector. A factor that led to some do weakness.
But I think any weakness is temporary. With a stable government and abundant natural resources that will be even more sought-after in an AI-driven world and largely insulated from automation Australia’s long-term prospects look strong.
Here's how the US Dollar Index has performed over the last ~30 years. The swing looks pretty typical to me. If it drops another 10% (as the article says Morgan Stanley thinks it might) then I could see this event as an outlier. For now, I find it interesting but not especially concerning. There's pros and cons to having stronger/weaker currency. I think it's probably worse to have a volatile currency than an especially strong or weak one?
As a Canuck who has seen these swings for decades of his life, with both our currency and the US dollar both contributing to this, I see nothing unusual in the current trends.
I take it that the "on track" is determined by extending a current downtrend as if it will continue precisely the same, for the next 6 months, which seems unlikely.
I get that with the recent passage of this US bill, people want to pile on. I can assure you, that Canadians have no love of the current administration. But this is another click-baitish thing being done to us all, feeding on people's upset, the time of year it is, the US holiday, and more.
The inflation of 2021-24 was a biblical disaster for the working class, and it's nowhere near as bad now. I'd say that makes 2025 a marked improvement from the economic disaster of the last 4 years, and which was backed up in every political poll (economy was issue 1).
The monetary inflation dump in Trump's previous term was early 2020, which then took time to work through asset prices and into consumer prices. So yes the next few years are going to be worse, as the effects of the terrible policies really set in. And unlike last time, we won't have leadership at the helm who might even try pulling up until 2027. And that's assuming enough Americans get their heads on straight to vote out the congress currently rubber stamping this wanton destruction.
Approval poll numbers seem to indicate a plurality of US voters agree with much of what the current government is implementing and for the first time in a very long period the majority of US voters seems to think the country is on the right track. You may not like what Trump and his crew are doing but most people did not like what your preferred candidates were doing and planning to do. Given these numbers I'd say "your democracy" (which is a constitutional republic but I'll just borrow some of the oft-heard rhetoric from the "democratic" party) seems to be functioning quite well and certainly a lot better than under the previous regime when approval numbers were abysmal.
Nice try, but the comment you're replying to didn't use the word democracy at all. Maybe it would help to read it again.
Just because a group of people approve of things happening doesn't make it a good year. My estranged family does and they don't have a grasp on the notion of cause and effect nor do they have an acceptable level of reading comprehension- I do not value their opinion in the slightest l.
Cheaper dollar boosts US exports. Makes imports more expensive even before tarrifs. Which situationally, some industrial sectors will want. The exporting ones. The ones reliant on imports, less such.
The US isn't self sufficient in food. Food imports are going to get more expensive.
Countries may be unwilling to trade with an increasingly belligerent US that slaps everyone with tariffs. In fact, many will just slap the US with tariffs and other barriers of their own.
> Which situationally, some industrial sectors will want
No major US export sector operates exclusively as an exporter without any exposure to imports or global supply chains. Even the largest US exporting industries (oil and gas extraction, civilian aircraft and parts, and pharmaceuticals) rely in varying degrees on imported inputs, components, or capital equipment... which companies are you talking about?
DXY index - often what these news reports use when talking about the dollars decline is ~97 today—still stronger than the ~90 it finished 2014 at and almost the same as 2018.
Ask yourself, did you panic during these years? Mostly no. These were pretty good years.
Volatility is normal - the main point is the index was lower than it is today (meaning we had a weaker dollar than this blog post is referring to as problematic) and the result wasn’t chaos - the economy grew.
Readit News
Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point. Recently it's been bouncing around at nearly 1 euro=1 dollar.
Then there's the yen. Used to bounce around between 1 dollar = 100~110 yen. Recently reached 1 dollar = 162 yen.
The dollar losing its value is a return to the pre-covid norm. Lots of countries pumped money into the US to make money off skyrocketing stocks and high interest rates, and now they're pulling it back into their countries. It's a high that can't last forever. And if it did last forever, that would not be good for the world as a whole since it would mean every country is supporting the US at the cost of devaluing themselves.
That's an odd way of saying the US doubled it's federal budget from $3T to $6T in response to COVID and has now ensconced this pork further into law. Under a "republican" administration, no less.
> The dollar losing its value is a return to the pre-covid norm.
Which is to say that even $3T contained an unjustified amount of debt spending just not as obscene as it is today.
> It's a high that can't last forever.
That's the "big beautiful bill" for ya.
Are you under the impression that this is surprising? Republicans are consistently the ones spending more when they are in power. It's time to dispel this myth that they are fiscally "conservative", they have presented more unbalanced/defficitary budgets than Democrats and the latter in recent memories are the only ones who managed to present budget with surpluses, under Clinton.
That's what inflation does.
People are routinely taught that inflation is the “decline of value of money”, but that's not the reality. Inflation is just the increase in consumer price, which is perceived as a decline in the relative value of the money, but its absolute value on foreign markets isn't (directly) affected by inflation.
And when the Central bank raise the interest rate to cool the economy down and temper inflation, then the absolute value of the money rises (because the higher the interest rates, the pricier the currency on the FX market). This increase in the currency value in turn also helps fighting inflation because it lowers the cost of imported goods.
So, indirectly, because of the central bank's reaction, inflation is actually increasing the absolute value of money, and this is what we saw in 2022 when the Fed raised the interest rates 9 month or so before the ECB start doing the same (because the inflation came in advance for the US compared to EU).
That's what they want as export based economies.
A balance is necessary, and things have been off balance recently.
My guess is that he wants to make it more attractive when it comes time to refinance the large portion of American long-term debt. He also wants to keep the interest rates low for the same reason.
My questions is: What is causing the actual slide? The concrete mechanics and motivations that are causing people to sell USD.
It has the side effect of boosting nominal investment value (even if real value stays flat or decreases), maintaining political support from people who can't do math. The numbers continue to look good, but outcomes worsen.
There are two flies in this ointment: international capital response and inflation.
The latter is why Trump has been spending political capital on demonizing the Fed and Powell. The house of cards collapses if actual inflation bites and reveals the game.
As to the former, it's tough to look at the situation and see US debt / equities as attractive as they once were:
1. Unsustainable US budget deficits
2. Political threats against the US central bank
3. Tariffs
4. Decreased immigration and worsening demographics
But I'm no economist and don't know what these numbers mean or what the consequences are.
Yet the Euro increased by > 10% despite the ECB cutting the rates quite significantly. Imagine how low the dollar would go if the Fed listened to Trump and cut to 1%..
It will be reflected in overall inflation statistics, and that limits the Fed’s ability to cut rates.
Only insofar as it remains sort of independent. Trump has ranted several times already about taking control of the thing and forcefully cutting rates.
Contrary to what xkcd or NYT might tell you, actual economic institutions like the IMF and the World Bank are coigzant of the issues caused by the status quo and largely view the Trumpian diagnosis, if not the horrid execution, as correct.
Always check both local currency and USD returns when evaluating international markets.
But I think any weakness is temporary. With a stable government and abundant natural resources that will be even more sought-after in an AI-driven world and largely insulated from automation Australia’s long-term prospects look strong.
Wow this is the case in most of the Europe too, what a coincidence. Fancy investing in our premium real estate?
and a USD denominated one: https://finance.yahoo.com/quote/SPY/
Have a look at the 1 year view. Note the fairly dramatic difference.
Here's how the US Dollar Index has performed over the last ~30 years. The swing looks pretty typical to me. If it drops another 10% (as the article says Morgan Stanley thinks it might) then I could see this event as an outlier. For now, I find it interesting but not especially concerning. There's pros and cons to having stronger/weaker currency. I think it's probably worse to have a volatile currency than an especially strong or weak one?
I take it that the "on track" is determined by extending a current downtrend as if it will continue precisely the same, for the next 6 months, which seems unlikely.
I get that with the recent passage of this US bill, people want to pile on. I can assure you, that Canadians have no love of the current administration. But this is another click-baitish thing being done to us all, feeding on people's upset, the time of year it is, the US holiday, and more.
Ah well.
Just because a group of people approve of things happening doesn't make it a good year. My estranged family does and they don't have a grasp on the notion of cause and effect nor do they have an acceptable level of reading comprehension- I do not value their opinion in the slightest l.
The US isn't self sufficient in food. Food imports are going to get more expensive.
Countries may be unwilling to trade with an increasingly belligerent US that slaps everyone with tariffs. In fact, many will just slap the US with tariffs and other barriers of their own.
No major US export sector operates exclusively as an exporter without any exposure to imports or global supply chains. Even the largest US exporting industries (oil and gas extraction, civilian aircraft and parts, and pharmaceuticals) rely in varying degrees on imported inputs, components, or capital equipment... which companies are you talking about?
The world doesn't need that much guns and missiles. There are two major markets currently and that's all mostly.
Ask yourself, did you panic during these years? Mostly no. These were pretty good years.