All eyes on the US dollar
“In many ways, the price of the US dollar is the most important price in the world. It’s the world’s reserve currency, and when it is rising it tends to mean the capital is worried and liquidity is tightening.
Even though inflation is over 8% there – which means it is losing over 8% of its value each year (in reality its purchasing power, if you factor in stocks, and real estate, it is falling faster than that) – it is still perceived as a safe haven.
When the dollar is rising, you will often see a corresponding fall in asset prices, especially inflation hedges like commodities and precious metals.
This past month the US dollar has gone parabolic. Sterling is below $1.25. It’s not so long ago that it was north of $2. Well, it was 2007.
Look at the chart of the dollar and it looks like some crypto currency that’s gone bananas, not the world’s reserve currency.
The US dollar index measures the dollar against the currencies of its major trading partners. It is currently butted up against huge resistance at 103. It touched that level in late 2016, at the end of the Obama presidency, and again in 2020 during the Covid pandemic.
If it goes above 103 then it will be at heights not seen since the beginning of the century. A run towards 120 will be on the cards. Then things will get interesting!
So keep an eye on it! It’s important.”*