Last week, IHS Markit reported that sentiment in Mexico’s factory sector had slipped again during December 2020. The organization’s manufacturing PMI had declined for the second straight month, having peaked recently back in October. Even then, the index hadn’t yet come close to crossing the magic 50 dividing line. The best it had managed during this global rebound was a mere 43.6.

This sentiment data correlates closely enough to the Mexican government’s statistics. According to that country’s INEGI, the agency responsible for tabulating and publishing data for Mexico’s economic accounts, Industrial Production has yet to push back even with February. For the month of November 2020 (the latest figures release today), total output in the sector remains 3.4% below where it had been nine months before.

More importantly, though, industrial activity was a whopping 7.2% less than it had been in May 2018 almost three years before. The economic struggles ongoing in Mexico have less to do with COVID than most people might imagine. 

And it’s not like Mexican industry had suffered continuously throughout the last decade. On the contrary, it had managed to eek out some sustained “prosperity” (relatively speaking) up until Euro$ #4 turned the industrial base into a constant source of drag and weakness. In GDP, there hadn’t so much as been a single year-over-year negative until 2019. In fact, the year-over-year decline in IP in November 2020 (-3.4%) would’ve been the second worst since 2009, behind only October 2019.

Given these facts, it really isn’t much of a wonder how the national currency, the peso, has remained weaker throughout the final three-quarters of 2020 than it had been starting off the global recession beginning March. Even with the contributions from the recent explosiveness (relatively speaking) in risk-taking due to vaccine-aphoria, and the presumably game-changing opportunities of ending the pandemic, MXN remains significantly below where it had been when this latest disruption (GFC2) all started.

Consequently, there’s absolutely no dollar crash evident in Mexico. Instead, the economic struggle evident south of the American border fits with the much more careful tread of dollar to peso unlike the mainstream narrative of the US currency’s fiery collapse.

The peso is no outlier; simply because the Mexican economy isn’t, either. The global economy for all the future optimism about rebounds and medicine continues to be subdued “somehow” nine months afterward. This was not the recovery the “V” had imagined.

In many of these places, there’s still the recession which had begun at least in 2019 if not 2018. Big economic setbacks had become common before COVID, a protracted weakness that is belied by the outward projection of the overall dollar issue.

This dollar “crash” (or, as I usually put it, DOLLAR CRASH!!!!) is the product mostly of the euro’s doing (with an assist from the British pound). The discrepancy between it and most of the rest of the world against the dollar’s exchange value is enormous, and enormously striking.

Because DXY has become the conventional measure for the dollar as a whole, the euro’s influence has been handed undeserved attention (to see why, go here). The weight given to Europe’s currency in that index is enormous (57.6%), leaving little else to influence. With only six total currencies in the basket, including EUR, there’s nothing of Asia (ex Japan) or Emerging Markets where dollar problems – like Mexico’s – show up.

But if the dollar isn’t crashing, and it’s not, what is it doing?

Remove the euro from any index, or take the view of individual currencies, the difference is night and day.

This is where we need to be specific because there is a difference between a falling dollar (reflation) and what we see in the peso and of so many other cross exchanges. With the euro included, the last nine months at best bear resemblance to 2017 and Reflation #3 (which, you’ll recall, featured also both the dramatic claims of DOLLAR CRASH!!!! along with the lacking of basis for them). Without the euro, even keeping CNY in mind, it’s not even nearly that far.

If it has taken nine months and so many currencies haven’t yet managed to move back to where they’d been in February 2020, the idea of reflation – let alone dollar collapse – just isn’t showing up. This better correlates to the economic problems in most if not all of them. What we can say of the dollar’s condition, therefore, isn’t crash, falling, nor reflation; it is simply meandering lower off its March/April extreme.

It may sound like a distinction without a difference, but this isn’t a small variation of theme. After having tried to push a flood myth into every corner of the globe, in dollars, due to bank reserves, these currency values put such ideas to rest. It never happened. It was claimed to have been the most severe bout of money printing – digital dollars – ever conceived, yet economies like currencies struggle still below the most basic levels.

That leaves then mostly “stimulus” via other forms. In the US and Europe, government spending along with the vaccine breakthroughs. Again, the response in euro was far and away greater than the response practically everywhere else. From Mexico to Brazil to India (key currencies that I watch with particular interest for inside indications about eurodollar conditions), there was a post-vaccine push but nowhere like it has been between dollar and euro.

And in any wider context beyond just 2020, it’s actually small, too (even in the euro, the move over the past six months isn’t dollar crash-y, either; see below).

The dollar shortage baseline might seem quite difficult to find these days. Even in the Treasury market, the jump in yields over the last week has hyped up the proclaimed prospects for the contradictory BOND ROUT!!!! which has so often accompanied the DOLLAR CRASH!!!! over the last decade plus. The inflationary fires of money printing and reckless government spending have grabbed all the headlines the past few months.

Yet, the dollar doesn’t corroborate. The euro only kind of does.

Instead, what we find outside the euro (and pound, the Brexit twins) is an unusually slow relaxation from the most extreme squeeze posture back around March. It got really bad for a spell (made unnecessarily so by QEs), but then, curiously, it’s been very, very slow to recover. That’s all that has happened between then and now; the big squeeze has eased off a little bit at a time.

Here’s the thing – it hasn’t gone away. And that leads to the big question everyone should be asking: why hasn’t it gone way? Why isn’t the dollar at least normalizing more quickly to the lowest possible standard, the first hurdle, which would be getting all these currencies that aren’t European back to where they had been before March?

Even with vaccine-aphoria and the general sense of huge government interventions, outside of maybe domestic commentary there’s much more caution still available across the entire global spectrum: first, about how bad things have been; and second, how hard it has been to come back from the trough (currency as well as economy). The inherent risks in such a situation would easily explain a persistent dollar shortfall (if you don’t like the specific implications of the word “shortage” given the dollar’s exchange direction).

The dollar is still coming back down, but it is not falling (according to my view) and it is nowhere near crashing. That in itself is cause for at least questioning why it’s not moving faster in a more widespread fashion. What is it that must be missing when you look beyond EUR.

A downward direction can mean different things. There’s a world of difference between a crashing dollar, a falling reflationary dollar, and what this is. After nearly ten months, much of the world has utterly struggled just to get back to even with March (which directly contradicts the idea how this slow move might be nothing more than the first stage of a larger, accelerating crash, either). And that does little or nothing of then digging out from the huge hole the dollar had the world, and these currencies, already in before COVID.

Maybe a vaccine can erase COVID from the exchange values – though it hasn’t fully yet – but, in the grand scheme of things, there’s more specific issues beyond those. The overall dollar direction is down, but that doesn’t represent a meaningful change in condition. Grinding slowly better from the worst dollar crisis in a dozen years doesn’t quite have the same inflationary, money printing ring to it, though, does it?

In other words, it’s not the dollar’s direction which should most intrigue you; rather, it’s the “slowly” part which stands out in a pretty obvious, where-is-all-this-money-printing kind of way. That’s the kind of specificity which is required.