John Authers: A weaker dollar is just what the world needs


By John Authers
Bloomberg News
Tuesday, July 23, 2020

It looks as though the time for a renewed dose of dollar weakness is here. If it happens, that will be great news for many.

On both a real basis (taking inflation in different countries into account) and in nominal terms, the dollar is roughly where it was 20 years ago. After various switchbacks during the shocks of the first half of this year, it also appears to be in a downward trend:


One reason for relative weakness is extremely positive, which is that the shortage of dollars in the rest of the world is growing far less acute.

... Dispatch continues below ...


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Back in March, the Federal Reserve started offering foreign-exchange swaps to a number of other central banks in friendly nations, as they suffered a dollar funding squeeze. They made great use of this at first, but demand for dollars had flattened by the end of April, and this month it has begun to fall, as made clear by this chart from Steven Englander of Standard Chartered Plc:


... Another key reason for dollar weakness is that the Fed seems to be committed to keeping longer yields low. The differential of Treasury over German bund yields dropped sharply in the first weeks of the crisis, and has now stabilized at a little above 100 basis points -- a level it hadn’t previously seen since 2014. All else equal, this weakens the dollar, particularly compared to the wide differentials of two years ago. ...

... For the remainder of the report:

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