Being Specific About Dollar Specifics

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.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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