Since mid-2017 that illusion has been evaporating, as the dollar falls (both against other fiat currencies and assets like oil, bitcoin, tech stocks and gold) and interest rates rise.
And this week the US seemed to welcome these trends:
The comments depart from the strong dollar policy of Treasury secretaries before him, going back to Robert Rubin in the Clinton administration, but fit with the Trump administration’s “America first” message.
The weak dollar policy could backfire and make U.S.
“They basically open this up as a one-way bet for traders, and traders will keep pushing it and keep pushing it,” said one strategist.
“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos, according to Bloomberg, adding that the currency’s short-term value is “not a concern of ours at all.”
Whether a weak dollar policy was the intended message or not, the fact that
The dollar was already set on a downward course this year, and Mnuchin’s comments help cement that path. The euro rose to 1.23 per dollar, and yen gained about 0.8 percent Wednesday against the greenback.
Treasury Department data show that China and Japan, the two largest holders of U.S. Treasurys, reduced their holdings in November as the dollar weakened. Last month, the International Monetary Fund reported the dollar’s share of global currency reserves fell in the third quarter to 63.5 percent, its smallest since mid-2014.
What are the downsides of a weak global reserve currency? Bond market carnage for one:
Ray Dalio Says Bond Bear Market Has Begun, Expects Historic Crash
“A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981,” Bridgewater Associates founder Dalio said in a Bloomberg TV interview in Davos on Wednesday. We’re in a bear market, he said.
However, as we explained last December, this is a low-ball
By now the number is far, far greater.
Gold, of course, loves this kind of thing:
Gold hits 4-month peak after US welcomes weaker dollar
The dollar index touched fresh three-year lows after U.S. Treasury Secretary Steven Mnuchin said a softer dollar was good for the United States. A decline in the dollar makes commodities priced in the greenback cheaper for buyers using other currencies.
Spot gold was up 0.95 percent at $1,353.80 per ounce at 12:02 p.m. EST, while U.S.
“It’s the weaker dollar, it’s the inflation focus and it’s also to some extent the market is continuing to look for a hedge against a world that’s becoming incredibly complacent with stocks at record highs,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen. “We’re honing in on the 2017 high around $1,357, which is going to be the next big level.”
“Global investors are also concerned about potential trade wars… which is stirring up some risk-aversion trade, so that, in turn, is supporting gold,” said Richard Xu, a fund manager at China’s biggest gold exchange-traded fund, HuaAn Gold. “I think gold prices will continue to trend higher along with other commodities, so $1,400 (an ounce) is our near-term target.”
In other precious metals, silver gained 2.14 percent to $17.41 per ounce after touching a 3-1/2-week low of $16.73 in the previous session.
- Source, John Rubino