Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

The Strong Dollar's Days May Be Numbered

By Michael KramerForexSep 02, 2019 09:56
The Strong Dollar's Days May Be Numbered
By Michael Kramer   |  Sep 02, 2019 09:56
Saved. See Saved Items.
This article has already been saved in your Saved Items

This post was written exclusively for

President Trump may finally get his wish for a weaker U.S. dollar. The dollar has been stubbornly strong since the spring of 2018; however, there are signs that its reign may be coming to an end. Yields have been falling around the world. However, they have been falling at an even faster pace in the U.S. It has resulted in spreads between U.S. and global yields to contract, and that should help to drive the dollar lower versus a basket of currencies.

The dollar has already started to weaken versus the Japanese yen. It looks as if the weakening versus the euro may not be far behind. Should the dollar weaken, it could create an interesting scenario for the Fed as it embarks on easing monetary policy.

A Strong Dollar

The dollar index has risen by nearly 11% since the spring of 2018. However, the significant advance in the dollar index has stalled out and instead traded sideways since the fall of 2018, in a range of 96.50 and 99. Now with the spread in yields contracting, the dollar could begin a steep decline.

The Yen

The decline has already started versus the Japanese yen as the spread between the U.S. and Japanese 10-year bonds have contracted by around 135 basis points since November 2018 shrinking to 1.75%. Over the same period the Japanese yen has strengthened versus the dollar by about 7% to approximately 106 from 115. There are signs that the yen could strengthen further perhaps back to 100. The yen has been trending towards 100 since April, and should it drop below technical support at 104.80, it could trigger that further strengthening.

Yen price chart
Yen price chart

The Euro

The next shoe to drop for the dollar is against the euro, as the spread between U.S. and German 10-year bonds have contracted by roughly 65 basis points since November to approximately 2.2%. As noted in an article last week, that spread could drop to around 2%. As that spread falls it should help to make the euro stronger versus the dollar. In fact, since April, the euro has stabilized around 1.10 to 1.11 to the dollar despite the prospects of the ECB launching a massive stimulus policy at its September meeting.

The interesting thing about the euro is its ability to hold firm ahead of monetary easing. It would indicate that perhaps the currency market is expecting the Federal Reserve to be more aggressive and to maintain a prolonged easing stance as compared to the ECB. Otherwise, the euro should be weakening substantially versus the dollar ahead of the ECB meeting in September.

Euro price chart
Euro price chart

How Much Could The Dollar Weaken?

While it may be too soon to know just how much the dollar index could fall over a long period. It seems reasonable that it could weaken to around 95 on the dollar index, a decline of over 3%. After that, the next significant level of technical support for the index would not come until 92.50, a drop of almost 6%.

U.S. dollar index price chart
U.S. dollar index price chart

Overall, the stable dollar may be suggesting that its recent reign is topping out and that the period of dollar strength may be coming to an end. It will add an interesting wrinkle to the Fed’s plan to cut interest rates too aggressively. If the dollar does begin to weaken, then it is likely to stoke the flames of inflation sending commodities such as oil, copper, and iron ore prices higher.

It is an entangled world, and perhaps someday, the market and all central banks will be on the same page. However, until that day happens it seems that the ebbs and flows of which currency is the weakest will continue to flip flop. Meanwhile, the dollar could revert to the weakness witnessed throughout 2017 and part of 2018.

The Strong Dollar's Days May Be Numbered

Related Articles

Dmitriy Gurkovskiy
EUR/USD Took A Break By Dmitriy Gurkovskiy - Dec 27, 2021

On Monday, 27 December, the major currency pair is consolidating around 1.1317. In the next several days, the asset is expected to remain calm: investors are having a good time...

The Strong Dollar's Days May Be Numbered

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email