In 1897 a newspaper contacted Mark Twain for a comment on news of his death – which drew the response from the alive and well Twain that “reports of my death are greatly exaggerated.” This is a misquote, but the sentiment is accurate. If you have been following financial news, you are probably aware of a growing chorus of talking heads claiming the dollar is dead or dying. But, like Twain, the rumors around the imminent death of the dollar are greatly exaggerated.
First, the DXY bounced off the critical support at 100 twice in 2023. The double bottom is reminiscent of the DXY bounce in Jan 2021 and June 2021 before it went on a historic run and murdered risk assets. I am not a fan of fractals, patterns, or much of TA, but this behavior is something to note and be wary of, especially in the short term.
Secondly, de-dollarization is probably correct, but not in the time frame people are presenting. De-dollarization will occur over decades – I may never see it. The dollar is the blood of the financial system and can’t just be replaced overnight. The US dollar, and US financial system, with all its faults and issues, is still better than anything else out there. The US dollar will remain strong until there is a viable alternative system, which will take decades to build out. For now, the US dollar dominates global finance, and expecting its imminent demise is misguided.
At The Same Time…
Even as the dollar shows strength and de-dollarization as a meme spreads, the market’s exuberance at cooling inflation has tempered. As Jason pointed out in his last feed post, inflation is still around 5% which is still extremely high. Markets are starting to grasp this and are pricing a potential rate hike in June.
A strong dollar and yet another potential rate hike could signal strong headwinds for risk assets, BTC, gold, and other things dependent on a weakening dollar. I am not a dollar bull by any stretch, but it’s hard to see crypto prices improving from here in the short term if the dollar starts showing strength and swinging around like a wrecking ball.