Published by Anthony Di Pizio

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Setting The Stage

To understand our point of view, it's important you read our previous post on this topic which we'll be referencing throughout this article. It was the basis of our prediction for EURUSD to rally from 1.08 to 1.20 back in May (ie, extreme USD weakness). Now, it's time to go the other way.

We established that over the last ~12 years, the USD has strengthened significantly despite interest rates steadily declining for the entire period. You might remember this chart overlaying the US Dollar Index with US 10 Year Yields since 2008:

What you're looking at is a +33% appreciation in the dollar despite interest rates falling about 84% over the same period. This is a longer term view, but in this update we're going to zoom in and look at the events following May 2020.

The Fed

When the Fed announced a renewed stimulus program in March to deal with COVID, the dollar...

Published by Anthony Di Pizio

Did you know we can research stocks for you? Give it a try!

The US Dollar Isn't Like The Rest

The relationship between US interest rates and the US dollar is typically misunderstood, and this presents opportunities as investors are often caught offside. The US dollar index is widely used as a measure of independent US dollar value, and has steadily risen since 2008 even though the path of US monetary policy was expansionary for the majority of this period. 

Conventional economic theory tells us that when the central bank of a country contracts monetary policy, the domestic currency strengthens, and when it expands monetary policy the domestic currency weakens. When examining the behavior of the US dollar, you'll see that this theory doesn't really apply...

The Federal Reserve and the US Dollar

We live in a time of unprecedented monetary action, so let's start here. COVID-19 has triggered a global response, with the US Fed...