The difficulty in analysing a currency like the US$ over a
long period is that there are so many factors impinging on it:
i)
Standard/base ( if any) and rate of increase of
supply
ii)
Interest rates
iii)
Public debt
iv)
Exchange rates
In a stable environment this isn’t too much of a problem, we
know what a typical policy response looks like so we can attribute likely
action to any foreseen change.
But when any policy is up for grabs, as now, it is much
harder and this is likely to be an evolving forecast rather than a fixed one.
Since the emerging market currency shocks of early 2015, the
US$ index has been relatively stable on a medium term basis. Obviously there
have been currency movements but these have had more to do with individual
countries than the US itself ( such as in Sterling after Brexit). Part of this
stability has been the reduction in concern about increased quantitative easing
( the talk has instead been of interest rate rises) and budget ceilings ( the
changed balance of power in the houses
and the much anticipated 2016 election have put it on the back burner).
Even now with the election past and the markets speculating on the effects of
the Trump presidency, there is still no discernible trend yet.
But it appears that is going to change. Nevertheless, we
must be careful of attributing blame for any upcoming difficulties at this
stage: they may well be triggered by problems elsewhere in the world ( China,
Europe etc) and not to the new president’s policies.
[Actually, as my global analysis points, out they are more
than likely attributable to at least 40 (if not more) years of misguided
economic policies]
2017
January and February 2017 don’t indicate anything
particularly new. There may be a little market instability but the picture is
one of relative stability, even if that stability includes growing debt. Indeed
the picture for the dollar value is probably good, although the fact that there
is a connection with the 1934 devaluation is food for thought. I’m betting on
this one being a positive move though.
March and April see more action though. Expansion is
demanded and there is indication of some dissent with the Fed leadership. But
still the picture is still one of continued long term developments and very
little new themes emerging.
May through July look inflationary for the dollar, though.
But not without some continued restraint.
There are definitely pressures towards breaking down
opposition towards expansion and indeed these are the start of bigger pressures
to come.
It is around August when we will really see radical effects.
The currency faces a dramatic challenge to the expansionary policies of the
last decades. There are echoes of the 1930s and of the 1970s.
There does not seem to be much opposition from the people at
this stage and there is still some structure in place to stop values becoming
too volatile.
September and October see more of the same. It is a time of
break-outs value wise. Expect more inflationary pressures, though the
indications are rather ambiguous at this stage as to whether the impact will be
a noticeable rise or fall in the currency. [We will have to await the other
currency forecasts to determine this]
November may see the issue of Fed leadership at the
forefront.
It is a transitionary month, where there may be a positive
view of the currency (See comments for January) , despite some conflicting
issues that put pressure on stability.
The indications are for a lot of currency trade volume wise
this month.
Despite the suggested positive values of 2017, the situation
is not permanent. December sees a key
change – possibly related to the physical currency, (maybe related to taxes)
but resonating with the currency events of 1862, when notes were no longer
backed by gold.
Increasingly we are seeing
a theme, with dates cropping up that led to the longer term reduction in value
of the dollar/ and or internal inflation.
2018
While 2018 may be dominated by changes in Fed leadership
that is not what we care about directly here.
January 2018 is relatively quiet, There may be more trade or
inflation and some discomfort but nothing new trend wise.
By February and March, however, we are likely to see a
clearer picture. There is almost certainly significant inflationary pressure
and this is leading to a breakdown in
the fundamentals underpinning the currency. No amount of belief in the
leadership is likely to overcome this and the Feb may have to resort to some
sort of restriction on dollar trade.
April is a month of adjustment and restriction. My
conclusion is at bets that the dollar is depressed at this time, and worst the
country is buying time negotiating with its bond buyers to persuade them to
keep buying.
Globally things are shifting too.
Dollarwise, there is no let- up in the likely increase in
money and the consequent undesirability of the dollar at this time.
We revisit the events/decisions of December 2017, as
their impact on the country is felt.
Another key turning point.
June to August sees more leadership challenges, more
attempts to tinker with the difficult currency situation and even less faith in
the core value of the currency.
More restrictions on dollar trade are likely.
September doesn’t really see much change. There is still a
lot of policy work going on, adjusting interest rates, trying to reassure
investors etc.
To some extent it seems to be working.
October, though casts doubt on that. There is a return to
shocks regarding the levels of credit/money. And the leadership has to focus on
the renegotiation of that credit with investors.
It is not enough, however, the forces are too strong and
November and December see a return to a
highly unstable state.
There are more restrictions on currency trades in November
and an attempt to address the underlying fundamentals as a way of bolstering
the attractiveness of the currency.
December ends with both internal hope and external value
pressures.
So 2018 definitely looks like a time to be holding something
other than dollars.
2019
Certainly in January there is no let-up in the problems of
2018. However there does seem to be a more positive attitude and a belief that
the situation can be improved.
However there is disagreement about the direction of policy.
February is another month when there is little direction in
trend, though there is a short term boost in value.
The period March to May, starts to give a suggestion of
where things will go in 2020.
There is a lot of talk still about alternative forms of
currency and indeed alternative financial structuring in general.
There is a disconnect between the best solution for the
country and that for the people.
There are still globally inflationary conditions in June and
July, albeit tempered a little.
There is some relaxation of some of the restrictions of 2018
and an increase in trading again. There may be a rush to invest in dollars or
an alternative.
The fundamentals are still being challenged so August to
October is about re-formulation of the currency. This will probably lead to
some short sharp but significant trades. There is a continuation of the
investment trends of June and July.
It is a mixed period for the Fed leadership
The last two months of 2019 are somewhat quieter. There is
still adjustment at work and there is still a greta deal of change at the level
of debt fundamentals.
But there is also a more measured level of inflation and
money growth. It is not eradicated altogether but toned down into far less
drama.
However the year end sees more restrictive conditions, as
the world faces a broader crisis in 2020.
The year continues with financial transformation in the
spotlight, though there are some obstacles as those in positions of power are
not fully free to act.
January starts with a very heavy mood, there is much soul
searching about the decisions of the last few decades.
It does look to be a better month for the dollar, perhaps
shocks elsewhere make it more attractive. There is lots of currency trade.
During February and March there are both challenges and new
developments in the leadership of those responsible for the currency.
Actions to reduce monetary expansion may start in earnest
despite misgivings.
April and May continue the work started in the previous 2
months.
There are some more sharp trading swings and some
inflationary calls by the people and later some relief to soften investors.
June sees another focus on global debt. Despite mixed signs, it isn’t too bad a month for the dollar
though.
Then there is a critical period from July to October when
decisions can be made more concrete.
However there are still tensions and the situation is not
yet fully resolved, leading to volatility. Expect some recessionary issues generally and
banking challenges more specifically.
Work on restructuring debt and the dollar continues into
November but the mood is more positive.
However the year end will be a critical time as the contrary
directions of expansion and contraction fight it out.
December is the final key turning point in the story. Currency
trade may be fast and furious again.
It could be that January 1st 2021 has been
designated as a key date in financial reorganisations and so the markets are
finding the new level.
Some changes will prove positive in the longer
run. But it must be said that this story is not over and won’t be until at
least 2025.
Comments