At the end of 2016 the consensus expectation for the direction of the dollar through 2017 was overwhelmingly for further dollar strength—the cover of The Economist on December 3, 2016, led with the caption “The Mighty Dollar: America’s Currency, the World’s Problem”. And in our November 25, 2016, Economics Weekly, “Is the Dollar Really a One-Way Bet?”, we concluded that it definitely was not. It was unsurprising, therefore, when weakness in the dollar followed through 2017 and has now continued into 2018. Yet, looking out today, the consensus for the future path of the dollar seems be much more mixed than it was back then. In this week’s Economics Weekly we discuss our outlook for the dollar, with the conclusion that while we may see some idiosyncratic gains, the trend on a trade-weighted basis will be for further weakness—and that should be a good thing for asset prices.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.