Perhaps the best way to understand the movement of the US Dollar currency is through the lens of security.
As investors, we look for safety in times of uncertainty.
Investors buy the dollar for the same reason investors buy gold or sovereign debt during a market crisis. Safety.
A strong dollar has always been a signal that our trading partners are struggling. This is because investors and central banks will buy the currency of the more stable economy and dump the others.
In 2011, the dollar turned up in response to the Euro-Crisis.
That November when the central banks met and agreed to work together to support the crisis, the global economy breathed a sigh of relief and the dollar stabilized.
So think of it this way, if you think Britain’s economy is on the brink of collapse, you sell the pound and buy the dollar. And doing so will drive up the dollar against the pound. The negative of a strong dollar for the US is it makes US goods expensive, lowering exports.
The US Dollar again moved up in 2014, during China’s stock market crisis. In kind, more capital fled China and sought safety in US Treasuries. This drove down yields and threatened US banking.
For reference, read my article addressing this threat in January 2016. The S&P 500 moved sideways until 2016.
Since early 2018 and the beginning of the trade wars, the US Dollar has moved up once again. The strong dollar is why the trade deficit with China has gone up rather than down.
Why? Again, we are the more stable economy in this war, so investors will buy the dollar and dump the renminbi.
The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.