The Dollar Returns to Trend (and Could Go Lower)

November 17, 2020 | Evan Frazier, CFA, CAIA, Senior Research Analyst

The dollar has enjoyed an impressive run during the last few years on the backs of trade restrictions, off-cycle expansionary fiscal policy, and muted inflation. That said, the currency has weakened in recent months, as the U.S. Dollar Index — which measures the strength of the greenback relative to a basket of several international currencies — has dropped nearly 10% since the end of March. The index is now nearing its 30-year average of 91.2.

The dollar could fall even further in the near term given the current landscape. While it is unclear exactly how President-elect Joe Biden will govern along the political spectrum, the new administration will almost certainly take a more dovish approach with respect to international trade. A de-escalation of Trump-era tariff wars would be a boon to emerging market equities, which could create trouble for the dollar. Additionally, the lack of additional fiscal stimulus in the United States after the passage of the CARES Act in March, coupled with unprecedented expansionary efforts by the Federal Reserve, is a harbinger of a weaker greenback. Even a new relief package that is more modest in size may not be enough to prevent a further slide in the dollar given the extraordinary scope of the Fed’s support and a sustained low interest rate environment.

It is important to remember that a declining dollar does not necessarily spell doom for the U.S. economy. Goods produced in the United States become more attractive to consumers when the domestic currency is weak, which can lead to job creation in the manufacturing sector and economic growth. Increased global demand for American goods can also lead to trade deficit reductions. If current trends continue, investors will have to weigh these benefits against the costs of a weakening greenback, which include inflation and subsequent increases in commodity prices, as well as lower relative returns for dollar-denominated assets. Now more than ever, allocators should stress the importance of international and style diversification.

Print PDF > The Dollar Returns to Trend (and Could Go Lower)

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Evan Frazier, CFA, CAIA
Senior Research Analyst

Get to Know Evan

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Related Content

05.12.2025

The Great Currency Reversal

As a result of policy uncertainty, shifting sentiment, and a potential U.S. economic slowdown, the dollar has moved lower in…

05.07.2025

I Want a New Drug

The aging population in the United States has garnered increasing attention over the past two decades, coinciding with the retirement…

04.29.2025

Measuring the Impact of Tariffs on Equity Performance

This week’s chart shows two indices created by Morgan Stanley that seek to track the performance of companies with different…

04.28.2025

As Real Estate Finds Its Bottom, Alternative Sectors Become More Prominent

Since the onset of the pandemic, the commercial real estate market has experienced significant volatility — first benefiting from a…

04.23.2025

Growth to Gold: Wall Street’s Favorite Trade Just Changed

According to the most recent Bank of America Global Fund Manager Survey, gold has surged to the top of the…

04.17.2025

1Q 2025 Market Insights

This video is a recording of a live webinar held April 16 by Marquette’s research team analyzing the first quarter…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >