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Long Story Short - How long will a bullish dollar continue?
Bull or bear dollar in the near future?
Since the trade war erupted with between China and the U.S. early last year, the dollar has gained about 3 percent compared to other currencies. However, President Trump feels that it would be a benefit to the U.S. if the dollar were weaker so that exports would be more competitive. China devalued their yuan this week in response to the ongoing trade war and President Trump feels they did this to gain the advantage in trade. Now, the Trump administration and the IMF believes the dollar should be weaker, although there are some experts that feel differently.
Dollar benefit form trade tensions. If trade tensions were to continue as many predict, the U.S. dollar could benefit from the increase in trade tensions with China. The dollar is a very liquid store of value and considered a safe investment because there aren’t many dollar alternatives if a full-blown trade war with China erupted.
Popular trade. Investors having a bullish view on the dollar has been a favored trade. A survey from Merrill Lynch’s July fund manager showed that the U.S. dollar was the fourth most crowded trade with nearly 50 percent of respondents saying it was overvalued. If the trade war heightens, a bullish dollar could be a benefit to the economy in a market where currencies are being devalued.
Adverse impact. The trade tensions could possibly undermine the dollar, having an adverse effect on the economy. Consumer confidence in the economy could decrease and financial conditions could be narrowed. This can cause the Fed to continue to ease up because of the risk to economy growth.
Too strong for too long. The dollar has been competitively strong for about the last three years. It’s challenging for a country to stay strong for so long without seeing patches of decline. U.S. debt can also weigh against a bullish dollar in the future.
Waiting game. The repercussions of the trade war have come as a surprise to most investors. With the dollar still being strong, it could serve as a benefit for investors because it’s considered a relatively safer investment due to the lack of alternatives. Trade tensions could also undermine the U.S. dollar and have an adverse effect on the economy, tightening financial conditions. The outcome of the U.S. dollar is to be determined based on the status of the trade tensions.
https://www.reuters.com/article/us-usa-dollar-china/u-s-dollar-when-will-bulls-turn-to-bears-idUSKCN1UX0AD,Gertrude Chavez-Dreyfuss August 7th, 2019