The U.S. dollar is hovering around a two-month high. Which is curious, because this year has otherwise been tough for the greenback. Up until a couple months ago, its value had been falling. Basically, ever since January.
The big reason why the dollar’s value has been rising recently compared to other country’s currencies has less to do with the dollar itself and more to do with what’s going on with those other countries.
“This year has been a turbulent year for other regions,” said Juan Perez, director of trading at Monex USA.
He said things have been especially turbulent lately in Japan and France where there’s a whole lot of political turmoil over government spending.
“Ultimately the dollar is experiencing strengthening and advancement, because both in Europe and in Japan, the political lack of steadiness is actually affecting more their respective currencies,” Perez said.
But some of the dollar’s recent strengthening also has to do with what’s going on here in the U.S., said Jeffrey Roach, chief economist at LPL Financial.
“As the Fed is easing up on rates, and the economy seems to be holding up on the headwinds, we actually might see the domestic economy recover and actually pick up the pace of growth,” he said.
And Roach said that hope, combined with lower interest rates, has helped to stop the dollar from falling further.
“I think we’ve identified a floor, and that’s certainly providing some stability now for those tracking dollar performance,” Roach said.
But the factors that were pushing the dollar lower earlier in the year haven’t exactly gone away. Those include President Donald Trump’s hostility to foreign trade, the attacks on Federal Reserve independence, and the likelihood that inflation will pick up again.
Kenneth Kim, senior economist at KPMG, said there are plenty of signs that investors are still nervous about the dollar, because many have been piling money into alternative assets.
“For example, going into precious metals, gold, and silver, which have hit new highs,” Kim said. “As well as bitcoin.”
Kim said the big concern is what happens if higher inflation slows down economic growth.
“Foreign investors might want to look elsewhere to park or invest their money, if U.S. economic growth is slowing down,” Kim said.
And that would cause the dollar’s value to fall further.
