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This cycle of dollar strength was created by the end of QE in mid-2014, and the initiation of QT in early 2018, all of which made US monetary policy relatively tight vs peers.
The cycle of strength is seemingly ending, on the cessation of QT into indefinite QE, from late 2019.
The cycle of strength is seemingly ending, on the cessation of QT into indefinite QE, from late 2019.
The US runs persistent current account deficits (weak FX), while Europe and Japan run current account surpluses (strong FX).
The dollar's strength, therefore, mainly comes from tight monetary policy, along with the global offshore USD debt that represents persistent demand.
The dollar's strength, therefore, mainly comes from tight monetary policy, along with the global offshore USD debt that represents persistent demand.
So, when fiscal and monetary policy in the US become loose, the USD historically has plenty of room to fall.
USD demand remains relatively steady year-to-year, while USD supply rapidly shifted from tightening to loosening over the past 16 months.
USD demand remains relatively steady year-to-year, while USD supply rapidly shifted from tightening to loosening over the past 16 months.
"Short dollar" is a bit crowded in a near-term sense (unlike early this year), and a bounce is possible.
But structurally long-term, the fundamental forces still look downward for the USD, unless the Fed substantially tightens, which they have little capacity or incentive to do.
But structurally long-term, the fundamental forces still look downward for the USD, unless the Fed substantially tightens, which they have little capacity or incentive to do.
