Given that currency trading is a vote by the whole world on your country every day and now that President Blowhard believes the dollar’s recent rise was because of “confidence” in him instead of an overflow from the Obama Administration, the US dollar is likely to decline now.
Trump commented that yesterday that the dollar was too strong because of “confidence in me”, but the currency has been going sideways to down since his inauguration. Confidence in him? More likely a rising lack of confidence.
And of course, the US dollar always does decline in Republican Administrations.
That was never more pronounced in historical terms than the day George W. Bush made his “Axis of Evil” speech. That moment was the precise top for the dollar in his term. It was as the entire world heard that and thought that guy is crazy and ran for cover. It declined 40 percent and has not completely recovered. No analysts ever seem to want to talk about it, preferring to say a weaker dollar makes American multi-national companies more competitive, but think what a drop of 40 percent in net worth means to the biggest economy in the world.
Subsequently, from the day Obama locked up the Democratic Party’s nomination in 2008 the dollar bottomed. It was as if dollar bulls knew he would be President and were, after the raging uncertainties of the Bush Administration, damn happy he would be. There were some wild swings in the currency as Obama battled Congressional Republican obstruction (shutting down the government…) but once he was reelected, it was clear sailing to the upside until now.
So what now?
The new era of raging uncertainties is just beginning so, despite professed Fed Reserve tightening, it is probably best to be defensive, if not downright bearish, on the US dollar.
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The U.S. dollar in relation to the S&P 500 index, oil, gold …and three Presidential administrations.
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The late great Ed Hart of the old Financial News Network used to say in the financial markets “we will know everything in the fullness of time.” Well, the “fullness of time” has never been more pointed than looking back at inflection points in the U.S. Dollar as it correlates with Gold and Oil and conveniently with the administrations of Presidents..
Clearly, (on the chart below) the Bush administration was good for gold and oil (any surprise there?) and horrible for the US dollar (currency being a vote by the world on one’s country every day).
Bush’s 2002 State of Union “Axis of Evil” was to the day the exact last high for the dollar and the launch of the commodities as if the whole world heard those words and bolted the U.S. currency in alarm.
By contrast, the election of Barack Obama stopped the dollar’s decline. On a dime, so to speak… And ended the extreme uncertainties of the Mideast oil supplies, crashing the price from its Bush era $140 highs to around $50 a barrel now.
That chop-chop in the dollar during subsequent years likely was a result of the political conflicts between the U.S. President and an obstructionist Republican Congress (to the point of threatening a default on US debt), and its strength now reflects Obama’s ability to do what he wants (remarkably and ironically a benefit of being a lame duck).
One suspects the current oil drop, not only is a result of the strong Obama dollar but also is in anticipation of the the Iran nuclear deal. With international sanctions being lifted, Iran’s oil will increase supply worldwide.
History, history – in other words, as Ed Hard would say, the fullness of time.
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The US Dollar — a long-term perspective on how the World votes on our country every day:
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