Dollar on borrowed time
SYDNEY (Reuters) – Forex Signals | The dollar was ending 2020 in a downward spiral on Thursday with investors wagering a global economic recovery will suck money into riskier assets even as the U.S. has to borrow ever more to fund its swelling twin deficits.
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The dollar was lying at 103.15 yen, but managed to hold above the December low of 102.86.
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Against a basket of currencies the dollar had sunk to 89.643, having touched it lowest since April 2018. That left it down 7.2% on the year, and no less than 13% on the 102.99 peak hit during the market mayhem of mid-March. The next target is 89.277 and then 88.251, which was the absolute low in 2018.
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Bears have also resurrected the “twin deficits” excuse for shorting the dollar – that the explosion in the budget and trade deficits means more dollars being printed and moved abroad.
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From this perspective the new U.S. stimulus bill is dollar negative as it adds to the nation’s debt, and President-elect Joe Biden is promising a lot more next year.
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The country is also haemorrhaging dollars on its trade account where the deficit on goods hit a record $84.8 billion in November as imports surged past pre-pandemic levels.
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Likewise, the current account deficit widened to a 12-year high in the third quarter and there was a large shortfall in net financial transactions as Americans borrowed more from abroad.
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In contrast, the European Union runs a huge current account surplus, largely thanks to Germany, so there is a natural inflow to euros through trade.
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“The U.S. dependence on foreign savings is increasing and at 3.4% of GDP, it is approaching a danger zone where it will become increasingly difficult to attract savings without further dollar weakness, or higher interest rates,” said Alan Ruskin, global head of G10 FX at Deutsche, in a note.
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“The deterioration in the ‘twin deficits’ will do nothing to improve USD sentiment, even if it does not as yet justify extreme USD undershooting either.”
Dollar on borrowed time
Dollar on borrowed time
Dollar on borrowed time
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