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Demystifying the Weak Dollar Puzzle
By Advisor Perspectives
Market participants have been puzzled by the decline in the U.S. dollar since the November 2016 election. Expectations over future central bank moves and short-term interest rates offer one explanation – and potentially a signal about the dollar’s future.
The dollar has lost ground against the vast majority of major currencies in spite of market optimism about U.S. growth, massive tax cuts, increased fiscal spending and three fed funds rate hikes in 2017 (with more expected in 2018). The rate differentials that currency strategists typically monitor – such as the differential between 10-year U.S. Treasuries and 10-year German Bund yields, or the same differential between two-year rates – failed to signal dollar weakness. In fact, these spreads continued to widen significantly in favor of the U.S. dollar. So what’s behind the weakness?
Read more at Advisor Perspectives.