The dollar is rising against floating currencies
The dollar is seeing multi-week highs against a host of major currencies. As the global economy weakens, it is increasingly evident that other economies will suffer right along with the United States and this is impacting the currency market. The sell-off includes the Euro, the Pound, the Australian Dollar, the Canadian Dollar, and the Yen. Recently, even the Mexican Peso has had a bad run against the Dollar.
As I indicated over a week ago, the U.S. Dollar is actually significantly undervalued against a host of floating-rate currencies that have seen remarkable run-ups against the greenback over the last few years. There is no upside to this trade.
If the United States is to benefit from currency depreciation this will have to come from broken pegs in the Middle East and Asia. But, because these exchange rates are managed, the issue of currency appreciation should take on a more acrimonious political tone.
In the meantime, the dividend the U.S. economy has seen from a falling floating currency is at an end. The heavy lifting of macroeconomic rebalancing cannot be achieved through currency changes in the floating exchange rate world. If the U.S. wants to get its trade deficit down, it must either stop spending so much or politicize the currency debate with Asia and the Middle East.
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