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U.S. Dollar Faces Major Test

Jul 23, 2020 · 6 min read

By Kevin Kelly, CFA

The US dollar is taking it on the chin this week amid an influx of policy announcements and renewed strength in advanced and emerging market peers. The US Dollar Index (DXY) is trading at its lowest level since March 9th and now sits 7.5% off its late March high, causing many to speculate on its ultimate demise.

We’ve discussed at length just how important the US dollar is to the global financial system and the direction of various asset prices. Admittedly, our base case in the short run has been calling for further dollar strength in the aftermath of today’s historic crisis; global policymakers are trying to run the same playbook as the Fed but without the demand backing a global reserve currency. Over the long run though, we foresee significant dollar weakness as currency debasement becomes more likely in the face of record debt levels relative to underlying economic activity.

In light of the past week’s price action, we have to consider whether the

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