Is the USD too strong?

Quote: There's a global currency crisis unfolding that's sure to catch up to the US Published 20 Sept 2018

A review of the values of 143 global currencies indicates that so far this year, more than 80 percent have fallen in value.
Richard X. Bove
CNBC.com
https://www.cnbc.com/2018/09/20/dick-bove-theres-a-global-currency-crisis.html

Currency exchange values are displayed in the buy-sell board of a bureau de exchange in Buenos Aires, on August 31, 2018. - Argentina's peso began to recover on Friday as markets opened, making a tiny 0.68 percent gain after losing 20 percent of its value against the dollar over the previous two days.
A review of the values of 143 global currencies indicates that so far this year, more than 80 percent have fallen in value.

Another eleven appear to be pegged to the dollar and 13 have risen in value. Of the 13 that have increased in value, only six are up more than 1 percent versus the dollar.

There have been outsized declines in countries like Venezuela (down 99 percent), Argentina (53 percent) and Turkey (38 percent). However, Brazil is down 20 percent, Russia 15 percent, India 11 percent, Sweden 10 percent, and the Philippines 8 percent. Big economies like China are experiencing a 5 percent currency value decline while the Euro is off by 3 percent.

The reason for these declines would appear to be the differing monetary policies of the United States and most of the rest of the world. The United States is experiencing solid economic growth and some signs of inflation. This has led the Federal Reserve to raise interest rates seven times in the past 22 months and it has nurtured the expectation that there will be 5 more increases in the next 15 months.


Other nations who are not experiencing solid growth are pursuing differing policies. Some are maintaining interest rates at low levels. There are nations like Germany and Switzerland that still have negative rates in some cases. Plus, many nations are unwilling to abandon quantitative easing policies.

If the currency of a nation declines meaningfully over a sustained period, it creates significant problems for that nation's economy. Inflation increases. There is pressure on interest rates to rise. Resources must be diverted from economic development and put into financial payments much of which could be sent overseas.

The poet John Donne wrote many decades ago that "no man is an island." In a global economy, no nation is either.

Quote: The dollar is really strong. That could hurt the economy

By Paul R. La Monica, CNN Business November 6, 2018
https://www.cnn.com/2018/11/06/investing/trump-strong-dollar/index.html

New York (CNN Business)President Donald Trump wants a weaker dollar, but his economic policies have helped make the dollar relatively strong.

The greenback is up nearly 4.5% so far in 2018 against other major global currencies, including the euro, yen and pound.
Few investing experts expect much to change for the dollar after Tuesday's midterm elections. That's in part because trade policy probably won't change even if Democrats win the House. And interest rates will probably keep rising -- boosting the dollar along with them.
A strong dollar is a sign of a strong economy. But it also comes with potential consequences.

Stronger dollar hurts profits for US multinationals

Continued dollar strength could wind up leading to more volatility in the stock market. The stronger dollar is a problem for many large American companies, because it reduces the value of their international sales and profits.
Hasbro (HAS), Harley-Davidson (HOG), Huggies maker Kimberly-Clark (KMB) and Gillette owner Procter & Gamble (PG) have all warned that the dollar is hurting their results.
So have industrial companies 3M (MMM) and Caterpillar (CAT) and Big Pharma giant Pfizer (PFE).
The stronger dollar can also cause trouble for large American firms at home, because it helps make products from overseas cheaper.
Why the strong dollar is so bad for business
Why the strong dollar is so bad for business
On the flip side, US goods are now more expensive in international markets because of the stronger dollar. That's a particular worry for giant tech hardware companies like Apple (AAPL).
"These big tech companies are global businesses that rely on international markets. If interest rates are rising and the dollar is following suit, that reduces the purchasing power of their foreign customers," said Jonathan Curtis, portfolio manager with the Franklin Technology fund.
JJ Kinahan, chief market strategist for TD Ameritrade, conceded that a stronger dollar is a problem. But he thinks the benefits of less expensive imports for American consumers and retailers may offset the profit hit that multinational companies have to take. A healthier US consumer could keep the economy afloat.
Dollar strength could backfire
Some warn that the dollar's strength combined with trade war policies could undo America's economic strength.
"Regardless of the makeup of the House, the President can still influence policy such as trade agreements by issuing executive orders. The prospect of tariffs and a strong dollar is a risk to global growth," wrote OppenheimerFunds senior investment strategist Brian Levitt in a recent report.

Are profits close to peaking?
If the dollar keeps rising, that could further squeeze not just China but fragile emerging markets like Turkey, Argentina and Indonesia, all of which have debt denominated in dollars.
"As US economic growth reaches a simmer and global growth slows, the market may view continued hikes as a bearish outcome that would drive the dollar higher, leading to further tightening financial conditions outside the US and exacerbating vulnerabilities in the emerging markets," wrote Katie Nixon, chief investment officer at Northern Trust Wealth Management, in a report.
The dollar's strength could turn out to be the undoing of many other economies around the world -- and that could eventually slow down the US as well.
Where does Trump stand?
Trump's stances on the dollar have shifted multiple times during his presidency.
For example, Trump said in January that he wanted a strong dollar, contradicting comments made by Treasury Secretary Steven Mnuchin about how a weaker dollar would be good for the United States.
But more recently, Trump has lamented the dollar's strength -- particularly as the Federal Reserve has raised interest rates, a move that boosts the dollar's value even further. He tweeted in July that Europe and China were "manipulating" their currencies.

Barring a major economic slowdown, the Fed is likely to raise rates again in December and several more times throughout 2019. That should lift the dollar's value further.

Quote: Aussie

Yes it is far too strong. If it could be devalued 20% or so in time for my next visit it would be much appreciated!lol

Quote: Aussie

I’m sure exporters stress when our dollar is strong. Don’t have to worry about that myself though. The stronger the better given I like to travel.

Quote: AZDuffman

We are on our way to killing the USD as a reserve of course, but nobody else seems to want to take over.

Quote: Pacomartin

Although you often hear that China's GDP has caught up to USA's GDP, that is by purchasing power parity measurement. If you go by exchange rate China and Euro Area are similar.

But the Commonwealth Realms has a GDP greater than Japan. If they re-entered a currency union, they would be a big reserve currency.

Quote: AZDuffman

The biggie is inertia. Since 1945 the USA has built the financial systems of the world. The USA has been willing to buy from the world, getting USD out there. Someone has to make a system totally independent to take over. Mystery remains what will happen when the dollar crashes and burns.

Allocated Reserves only

Q3-17	Q4-17	Q1-18	Q2-18	Q3-18	Quarterly
63.52%	62.72%	62.78%	62.40%	61.94%	Claims in U.S. dollars
20.06%	20.16%	20.36%	20.25%	20.48%	Claims in euro
1.12%	1.23%	1.40%	1.84%	1.80%	Claims in Chinese renminbi
4.52%	4.90%	4.59%	4.86%	4.98%	Claims in Japanese yen
4.49%	4.53%	4.67%	4.47%	4.49%	Claims in pounds sterling
1.77%	1.80%	1.70%	1.70%	1.69%	Claims in Australian dollars
2.00%	2.03%	1.86%	1.90%	1.95%	Claims in Canadian dollars
0.17%	0.18%	0.17%	0.16%	0.15%	Claims in Swiss francs
2.33%	2.44%	2.47%	2.42%	2.52%	Claims in other currencies

Total Foreign Exchange Reserves

Q3-17	Q4-17	Q1-18	Q2-18	Q3-18	Quarterly
54.25%	54.90%	56.30%	57.23%	58.18%	Claims in U.S. dollars
17.13%	17.65%	18.25%	18.58%	19.23%	Claims in euro
3.86%	4.29%	4.11%	4.46%	4.68%	Claims in Japanese yen
3.84%	3.97%	4.19%	4.10%	4.22%	Claims in pounds sterling
1.71%	1.77%	1.67%	1.75%	1.83%	Claims in Canadian dollars
1.51%	1.57%	1.53%	1.56%	1.59%	Claims in Australian dollars
0.96%	1.08%	1.26%	1.68%	1.69%	Claims in Chinese renminbi
0.15%	0.16%	0.15%	0.14%	0.15%	Claims in Swiss francs
1.99%	2.14%	2.21%	2.22%	2.37%	Claims in other currencies
14.60%	12.47%	10.33%	8.28%	6.06%	Unallocated Reserves
100.00%	100.00%	100.00%	100.00%	100.00%	Total Foreign Exchange Reserves