Southeast Asia, like much of the rest of the world, is losing patience with King Dollar.
The westernization of the world’s reserve currency, as through sanctions on those deemed bad actors — such as Russia for its war in Ukraine — has pushed even the typically diplomatic Southeast Asians to warn the US of the consequences.
In a conference in Singapore on Tuesday (Jan 10), multiple former officials spoke about de-dollarisation efforts underway and what economies in the region should be doing to mitigate the risks of a still-strong dollar that’s weakened local currencies and become a tool of economic statecraft.
“The US dollar is a hex on all of us,” George Yeo, former foreign minister of Singapore, said at the conference hosted by the ISEAS-Yusof Ishak Institute. “If you weaponise the international financial system, alternatives will grow to replace it” and the US dollar will lose its advantage.
While few expect to see the end of King Dollar’s global sovereign status anytime soon, Yeo urged that the risk of it happening be taken more seriously.
“When this will happen, no one knows, but financial markets must watch it very closely,” said Yeo, who is a visiting scholar at the National University of Singapore’s Lee Kuan Yew School of Public Policy.
After gaining 6.2% in 2022, the US dollar is down 0.67% in the first several days of this year, through the end of Tuesday, according to the Bloomberg Dollar Spot Index.
Yeo noted that in times of crisis, the US dollar rises further — as with levies on Russia that have left Russian banks estranged from a network that facilitates tens of millions of transactions every day, forcing them to lean on their own, much smaller version instead. That’s put more pressure on third-party countries, too, which have to unduly rely on US dollar use.
Following on Yeo’s remarks later in the conference, former Indonesian trade minister Thomas Lembong applauded Southeast Asia's central banks that already have developed direct digital payments systems with local currencies, and encouraged officials to find more ways to avoid leaning too hard on the greenback.
“I have believed for a very long time that reserve currency diversification is absolutely critical,” said Lembong, who’s also a co-founder and managing partner at Quvat Management Pte Ltd. Supplementing US dollar use in transactions with use of the euro, renminbi, and the yen, among others, would lead to more stable liquidity, and ultimately more stable economic growth, he said.
The 10 Asean countries are just too disparate to establish a common currency as with the euro bloc. But Lembong said he was “deeply passionate” on this subject of the US dollar as a global reserve currency.
The direct digital payments systems — which have boosted local currency settlement between Malaysia, Indonesia, Singapore and Thailand — are “another great outlet for our financial infrastructure”, he said.- Bloomberg
Growing acceptance: A bank employee counting 100-yuan notes in Nantong, China’s eastern Jiangsu province. Usage of the currency has jumped in the past three months as international funds boosted holdings of Chinese government bonds. — AFP `
BEIJING: The Chinese yuan is making deeper inroads as a currency of choice for global payments, with international transactions climbing to their highest level ever. `
Payments using the currency jumped to a record 3.2% of market share, according to data from the Society for Worldwide Interbank Financial Telecommunications, breaking through its previous high set in 2015 that came on the back of a currency devaluation in a bid to increase exports. `
Usage has jumped in the past three months as international funds boosted holdings of Chinese government bonds, pushing their share to a fresh record, and amid gas producer Gazprom Neft’s decision to accept yuan rather than dollars for fuelling the Russian airplanes at China’s airports. `
The People’s Bank of China governor Yi Gang urged emerging economies to promote the use of local currencies at a Group-of-20 central banks’ gathering Wednesday, echoing a similar call from Indonesia to reduce reliance on the dollar to manage the risk of Federal Reserve’s stimulus withdrawal. `
The yuan will be one of the biggest beneficiaries as “trade between various Asian countries and China grows, and more of it is denominated in yuan,” said Alvin T. Tan, head of Asia FX strategy at Royal Bank of Canada in Hong Kong. `
Yuan’s growing popularity could also provide additional support for assets denominated in the currency, even as China’s yield premium over the United States narrows due to policy divergence between the two nations. She expects the yuan to be assigned a larger share in the International Monetary Fund’s reevaluation of Special Drawing Rights basket in July. `
The Regional Comprehensive Economic Partnership trade deal that deepens China’s regional foreign trade ties will also prompt member nations to raise yuan asset holdings due to further economic integration with China, she wrote in a note Wednesday. `
The currency retained its fourth place in the past two months, compared with being the 35th most-popular medium of exchange for payments in October 2010 when Swift, which handles cross-border payment messages for more than 11,000 financial institutions in 200 countries, started tracking. `
Despite its rise in the rankings and having upped its market share by orders of magnitude over the last 12 years, the yuan is still dwarfed in popularity by its more established peers, notably the US dollar and the euro. `
The dollar kept its top spot in January, a position it’s held since June, even though its market share fell to about 39.9% from 40.5% in December. `
The euro also lost ground but held onto second place, while the British pound and yen rounded out the top five in third and fifth place, respectively. — Bloomberg
The cooperation between China and France on the RMB
Cross-Border Interbank Payment System will help with
internationalization of the yuan and will also provide an opportunity
for the eurozone to reduce its reliance on the US dollar, experts said.
It’s
finally happened. A major worldwide government has just bestowed a huge vote of confidence and legitimacy onto the world of cryptocurrencies. China, in an unprecedented move, just announced that they are officially adopting a certain cryptocurrency as China's official coin!
The government of China just informed that they have chosen a
preferred firm for the purchase and marketing of their new coin - YuanPay Group. The sales of China's coin officially started Juny 12 of 2021 and currently these coins can be bought only from YuanPay Group.
In fact, China deputy minister of finances, Liu Kun, informed that their new official coin stating price is just CNY 0.12!
! 1 Chinese Yuan equals
0.13 EUR
That’s right, the coin is incredibly inexpensive in comparison to most other coins out there. Bitcoin, for example, trades at CNY 65,366.84 at the time of this writing and Ethereum trades at
around CNY 1,362.76.
We were able to get Sir Richards Bronson’s thoughts on China’s new coin and this is what he had to say:
Sir Richard Bronson stated (pic): "Everytime a major corporation
announces even a small partnership with an individual
cryptocurrency, that coin’s value skyrockets. I can't wait to see what
is going to happen when a government officially adopts a crypto. When
the name of China’s coin is released, many people will become
millionaires practically overnight."
A few of us at forbes were curious enough to buy a couple coins just to see how everything looks and what the reading fees are
like.
It was fairly easy to get the coins, but i will show you the whole process below for those that are interested.
First step was to fill out all the details. As you can see, nothing complicated so far.
Second step, I was taken to YuanPay Group's wallet, where they chose my country specific broker to buy China's
coins.
Third step, I was taken to purchase page and had to fill out
my details.
For CNY 1,921, I received 21,375 coins at CNY 0.12 cents each. You
can see current value of my coins on the same page.
PS: As an early investor they gave me 5,367 extra coins for
free!
The whole process was simple and I even received a phone call
from one of YuanPay Group's friendly agents, but
I didn't really need any help as the whole process was easy
enough.
After finishing this article, literally around 4 hours, I
checked my wallet again and to my surprise:
In only 4 hours, the price increased from CNY 0.12 to CNY 0.31. At
this point, I was positively surprised. I am not selling my
coins as of yet because all the experts predict that the
price will rise to at least CNY 9,192.63 per coin in matter of
months.
YuanPay Group was kind enough to give us
a 100% accurate coin movement price counter, so everyone can see
the increase directly on this page.
Official price currently
1 coin=CNY 0.33
(Note - price is being updated every 30 minutes)
With a story of this nature, news seems to be breaking every so often,
we’ll be sure to update the story as needed.
You can find their promo video as well as direct coin sales here:
Jerome Powell
Photographer: Andrew Harrer/Bloomberg
Currency Traders on Front Line as Markets Stay Wary of U.S. Risk
The final week of 2018 could prove tumultuous for investors as holiday-thinned trading combines with a growing array of pressures on markets.
Traders in the $5.1 trillion-a-day currency market were among the first to respond to a partial U.S. government shutdown and a report that President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell. The dollar slipped against its Group-of-10 peers, while the yen, seen by many as a haven, gained for a seventh day.
Treasury futures climbed in early Asian hours before paring their advance. Cash bonds trading was shut in Asia due to a holiday in Japan, the first in a week that will see a number of closures across major markets.
Sentiment in global financial markets has already taken a beating with the S&P 500 Index just recording its worst week in seven years. Increased uncertainty over the leadership of the Fed could add to turmoil along with a partial shutdown of the U.S. government, although assurances from U.S. Treasury Steven Mnuchin about liquidity and the future of the central bank chief may ease some concerns.
The Treasuries yield curve last week moved closer than ever to its first post-crisis inversion and the rally in safer assets dragged the 10-year yield below 2.75 percent for the first time since April. However, given that much of the upheaval is emanating from the U.S., it is not entirely clear whether Treasuries, and also the U.S. dollar, will act as reliable havens should Powell’s leadership face a genuine threat.
Societe Generale SA’s head of U.S. rates strategy Subadra Rajappa said she thinks a change in Fed leadership is “extremely unlikely,” though she’s not ruling out the possibility of the president persuading Powell to “resign.”
“If it comes to that, given the backdrop of the recent government shutdown, investors might be less inclined to treat Treasuries as safe haven assets,” she said by email. “A change in Fed leadership will likely rattle the already-fragile financial markets and further tighten financial conditions.”
Market participants are generally of the view that Powell will not be fired, and senior administration officials say Trump recognizes he doesn’t have that authority. But even continued exploration of the possibility could make for a volatile week.
The market response to a material threat to the Fed’s independence would be complicated, according to Steve Englander, head of global G-10 FX research and North America macro strategy for Standard Chartered Bank. He said near-term uncertainty over the process and politics in a fluid situation would weigh on equity prices and bond yields. The dollar, he said, would likely face multiple opposing forces, but the “near-term response is likely negative on the risk that U.S. economic policy becomes more erratic.”
Kitchen Sink
The Bloomberg Dollar Index was up more than 4 percent in 2018 at the end of last week and is close to its highest level in a year and a half, while the Japanese yen surged around 2 percent last week versus the greenback.
Chris Rupkey, chief financial economist at MUFG Union Bank in New York, is among the few eyeing the strained relations between the president and the Fed chair with equanimity.
The stock market “has discounted everything but the kitchen sink, including the loss of a Fed Chair who hasn’t been in office for even a year yet,” he said by email.
Given that the Fed is already close to the end of its hiking cycle, the markets won’t melt down if Powell leaves office, according to Rupkey. “They already did,” he said.
Those on the front lines of this week’s opening trade say markets are on a knife edge.
Mind the Machines
“If equity markets fall further, they’re going to set off machine-based selling,” said Saed Abukarsh, the co-founder of Dubai-based hedge fund Ark Capital Management. “The other risk is that experienced traders are on holiday, so the ones left will be trigger happy with every new headline.”
“I can’t see buyers stepping into this market to stem off any selling pressure until January,” said Abukarsh. “So if you need to adjust your books for the year-end with any meaningful size, you’re going to have to pay for it.”
Trump’s two-year stock honeymoon ends with hunt for betrayer
https://youtu.be/co5RmV_AoUs
width="640"
Nobody was happier to take credit for surging stocks than Donald Trump, who touted and tweeted each leg up. Now the bull is on life support and the search for its killer is on.
And while many on Wall Street share the president’s frustration with the man atop his markets enemies list, Federal Reserve Chairman Jerome Powell, they say Trump himself risks making things worse with too much aggression when equities are one bad session away from a bear market.
“You would think that after coming off of the worst week for the markets since the financial crisis in 2008, he would look to create some stability,” said Chuck Cumello, CEO of Essex Financial Services. “Instead we get the opposite, with this headline and more self-induced uncertainty. This coming from a president who when the market goes up views it as a barometer of his success.”
U.S. stock futures whipsawed Monday and were little changed after swinging from a 0.9 percent gain to a loss of the same magnitude. The equity market closes at 1 p.m. in New York ahead of the Christmas holiday.
Click here to see all of Trump’s tweets on the economy and markets.
Attempts by Treasury Secretary Steven Mnuchin to reassure markets that Powell wouldn’t be ousted appeared to have largely removed that as an immediate concern for traders, but the secretary’s tweet Sunday that he called top executives from the six largest U.S. banks to check on their liquidity and lending infrastructure added to anxiety.
To be sure, equities remain solidly higher since Trump took office. Even with its 17 percent drop over the last three months, the S&P 500 has risen 18 percent since Election Day. The Nasdaq Composite Index is up 25 percent with dividends. True, volatility has jumped to a 10-month high, but market turbulence was significantly worse for three long stretches under Barack Obama.
The S&P 500 slumped 7.1 percent last week and the Nasdaq Composite Index spiraled into a bear market. As of 2:31 p.m. in Hong Kong, futures on the S&P 500 were up 0.6 percent while Nasdaq 100 contracts added 0.5 percent.
While Trump seems to have found his villain in Powell, blame is a dubious concept in financial markets, as anyone who has tried to explain the current rout can attest.
Along with the Fed chairman, everything from rising bond yields, trade tariffs, falling bond yields, Brexit, tech valuations and Italian finances have been implicated in the downdraft that has erased $5 trillion from American equity values in three months.
Whatever’s behind it, nothing has been able to stop it. And while many on Wall Street credit the president for helping jump-start the market after taking office, they say he should look in the mirror to see another person creating stress for it right now.
“Trump was gloating how much good he had done for the economy and the market. Now he’s blaming Powell for the decline instead of himself,” said Rick Bensignor, founder of Bensignor Group and a former strategist for Morgan Stanley. “Half his key staff has been fired or quit. The markets are off for a variety of reasons, but most of them have Trump behind them.”
If Trump is bent on getting rid of Powell, there may be ways of doing it that don’t risk kicking a volatile market into hysteria, said Walter “Bucky” Hellwig, a senior vice president at BB&T Wealth Management in Birmingham, Alabama.
“It doesn’t have to be firing, it could be someone else taking Powell’s job. That could be a net positive for the markets,” Hellwig said. “A friendly change in the head of the Fed may cause some turbulence short-term but it may be offset with the markets repricing the risk associated with two rate hikes in 2019.”
For now, the turmoil shows no signs of letting up. In the Nasdaq 100, home to tech giants like Apple Inc. and Amazon.com, there have been 17 sessions with losses greater than 1.5 percent this quarter, the most since 2009. Small caps are down 26 percent from a record, while the Nasdaq Biotech Index has dropped at least 1 percent on seven straight days, the longest streak since its inception in 1993.
It’s been a long time since anyone in the U.S. has lived through this protracted a decline. Including Trump.
”It’s impossible to tease out what the proximate causes are,” said Kevin Caron, a senior portfolio manager at Washington Crossing Advisors. “The normal ebb and flow of financial markets are all part of the mix. It’s impossible just to point to the chairman as the only input.”
A dollar collapse is when the value of the U.S. dollar plummets. Anyone who holds dollar-denominated assets will sell them at any cost. That includes foreign governments who own U.S. Treasurys. It also affects foreign exchange futures traders. Last but not least are individual investors.
When the crash occurs, these parties will demand assets denominated in
anything other than dollars. The collapse of the dollar means that
everyone is trying to sell their dollar-denominated assets, and no one
wants to buy them. This will drive the value of the dollar down to near zero. It makes hyperinflation look like a day in the park.
Two Conditions That Could Lead to the Dollar Collapse
Two conditions must be in place before the dollar could collapse.
First, there must be an underlying weakness. As of 2017, the U.S.
currency was fundamentally weak despite its 25 percent increase since
2014. The dollar declined 54.7 percent against the euro between 2002 and 2012. Why? The U.S. debt almost tripled during that period, from $6 trillion to $15 trillion. The debt is even worse now, at $21 trillion, making the debt-to-GDP ratio
more than 100 percent. That increases the chance the United States will
let the dollar's value slide as it would be easier to repay its debt
with cheaper money.
Second, there must be a viable currency alternative for everyone to buy. The dollar's strength is based on its use as the world's reserve currency. The dollar became the reserve currency in 1973 when President Nixon abandoned the gold standard. As a global currency, the dollar is used for 43 percent of all cross-border transactions. That means central banks must hold the dollar in their reserves to pay for these transactions. As a result, 61 percent of these foreign currency reserves are in dollars.
Note: The next most popular currency after the dollar is the euro. But it comprises less than 30 percent of central bank reserves. The eurozone debt crisis weakened the euro as a viable global currency.
China and
others argue that a new currency should be created and used as the
global currency. China's central banker Zhou Xiaochuan goes one step
further. He claims that the yuan should replace the dollar to maintain China's economic growth.
China is right to be alarmed at the dollar's drop in value. That's
because it is the largest foreign holder of U.S. Treasury, so it just
saw its investment deteriorate. The dollar's weakness makes it more
difficult for China to control the yuan's value compared to the dollar.
Could bitcoin replace the dollar as the new world currency? It has many benefits. It's not controlled by any one country's central bank.
It is created, managed, and spent online. It can also be used at
brick-and-mortar stores that accept it. Its supply is finite. That
appeals to those who would rather have a currency that's backed by
something concrete, such as gold.
But there are big obstacles. First, its value is highly volatile. That's because there is no central bank to manage it. Second, it has become the coin of choice for illegal activities that lurk in the deep web. That makes it vulnerable to tampering by unknown forces.
Economic Event to Trigger the Collapse
These two situations make a collapse possible. But, it won’t occur
without a third condition. That's a huge economic triggering event that
destroys confidence in the dollar.
Altogether, foreign countries own more than $5 trillion in U.S. debt. If China, Japan or
other major holders started dumping these holdings of Treasury notes on
the secondary market, this could cause a panic leading to
collapse. China owns $1 trillion in U.S. Treasury. That's because China pegs the yuan to
the dollar. This keeps the prices of its exports to the United
States relatively cheap. Japan also owns more than $1 trillion in
Treasurys. It also wants to keep the yen low to stimulate exports to the United States.
Japan is trying to move out of a 15-year deflationary cycle. The 2011 earthquake and nuclear disaster didn't help.
Would China and Japan ever dump their dollars? Only if they saw their holdings declining in value too fast and they had another export
market to replace the United States. The economies of Japan and China
are dependent on U.S. consumers. They know that if they sell their
dollars, that would further depress the value of the dollar. That means
their products, still priced in yuan and yen, will cost relatively more
in the United States. Their economies would suffer. Right now, it's
still in their best interest to hold onto their dollar reserves.
Note: China and Japan are aware of their vulnerability. They are selling more
to other Asian countries that are gradually becoming wealthier. But the
United States is still the best market (not now) in the world.
When Will the Dollar Collapse?
It's unlikely that it will collapse at all. That's because any of the
countries who have the power to make that happen (China, Japan, and
other foreign dollar holders) don't want it to occur. It's not in their
best interest. Why bankrupt your best customer? Instead, the dollar will
resume its gradual decline as these countries find other markets.
Effects of the Dollar Collapse
A sudden dollar collapse would create global economic turmoil.
Investors would rush to other currencies, such as the euro, or other
assets, such as gold and commodities. Demand for Treasurys would plummet, and interest rates would rise. U.S. import prices would skyrocket, causing inflation.
U.S. exports would be dirt cheap, given the economy a brief boost. In the long run, inflation, high interest rates, and volatility would strangle possible business growth. Unemployment would worsen, sending the United States back into recession or even a depression.
How to Protect Yourself
Protect yourself from a dollar collapse by first defending yourself from a gradual dollar decline.
A dollar collapse would create global economic turmoil. To respond to
this kind of uncertainty, you must be mobile. Keep your assets liquid,
so you can shift them as needed. Make sure your job skills are
transferable. Update your passport, in case things get so bad for so
long that you need to move quickly to another country. These are just a
few ways to protect yourself and survive a dollar collapse.
The U.S. trade deficit with China
was $375 billion in 2017. The trade deficit exists because U.S. exports
to China were only $130 billion while imports from China were $506
billion.
The United States imported
from China $77 billion in computers and accessories, $70 billion in
cell phones, and $54 billion in apparel and footwear. A lot of these
imports are from U.S. manufacturers that send raw materials to China for
low-cost assembly. Once shipped back to the United States, they are
considered imports.
In 2017, China imported
from America $16 billion in commercial aircraft, $12 billion in
soybeans, and $10 billion in autos. In 2018, China canceled its soybean
imports after President Trump started a trade war. He imposed tariffs on Chinese steel exports and other goods.
Current Trade Deficit
As of July 2018, the United States exported a total of $74.3 billion
in goods to China. It imported $296.8 billion, according to the U.S. Census Bureau. As a result, the total trade deficit with China is $222.6 billion. A monthly breakdown is in the chart.
Monthly U.S. Trade Deficit With China From January to July 2018
China can produce many consumer goods at lower costs than other
countries can. Americans, of course, want these goods for the lowest
prices. How does China keep prices so low? Most economists agree that
China's competitive pricing is a result of two factors:
A lower standard of living, which allows companies in China to pay lower wages to workers.
An exchange rate that is partially fixed to the dollar.
If the United States implemented trade protectionism, U.S. consumers
would have to pay high prices for their "Made in America" goods. It’s
unlikely that the trade deficit will change. Most people would rather
pay as little as possible for computers, electronics, and clothing, even
if it means other Americans lose their jobs.
China is the world's largest economy.
It also has the world's biggest population. It must divide its
production between almost 1.4 billion residents. A common way to measure
standard of living is gross domestic product per capita. In
2017, China’s GDP per capita was $16,600. China's leaders are
desperately trying to get the economy to grow faster to raise the
country’s living standards. They remember Mao's Cultural Revolution all
too well. They know that the Chinese people won't accept a lower
standard of living forever.
China sets the value of its currency, the yuan, to equal the value of a basket of currencies that includes the dollar. In other words, China pegs its currency to the dollar using a modified fixed exchange rate. When the dollar loses value, China buys dollars through U.S. Treasurys to
support it. In 2016, China began relaxing its peg. It wants market
forces to have a greater impact on the yuan's value. As a result, the dollar to yuan conversion has been more volatile since then. China's influence on the dollar remains substantial.
Effect
China must buy so many U.S. Treasury notes that it is the largest
lender to the U.S. government. Japan is the second largest. As
of September 2018, the U.S. debt to China was $1.15 trillion. That's 18 percent of the total public debt owned by foreign countries.
Many are concerned that this gives China political leverage over
U.S. fiscal policy. They worry about what would happen if China started
selling its Treasury holdings. It would also be disastrous if China
merely cut back on its Treasury purchases.
Why are they so worried? By buying Treasurys, China helped keep
U.S. interest rates low. If China were to stop buying Treasurys, interest rates would rise.
That could throw the United States into a recession. But this wouldn’t
be in China's best interests, as U.S. shoppers would buy fewer
Chinese exports. In fact, China is buying almost as many Treasurys
as ever.
U.S. companies that can't compete with cheap Chinese goods must
either lower their costs or go out of business. Many businesses reduce
their costs by outsourcing jobs to
China or India. Outsourcing adds to U.S. unemployment. Other industries
have just dried up. U.S. manufacturing, as measured by the number of
jobs, declined 34 percent between 1998 and 2010. As these industries
declined, so has U.S. competitiveness in the global marketplace
.
What's Being Done
President Trump promised to lower the trade deficit with China.
On March 1, 2018, he announced he would impose a 25 percent tariff on
steel imports and a 10 percent tariff on aluminum. On July 6, Trump's
tariffs went into effect for $34 billion of Chinese imports. China
canceled all import contracts for soybeans.
Trump's tariffs have raised the costs of imported steel, most of
which is from China. Trump's move comes a month after he imposed tariffs
and quotas on imported solar panels and washing machines. China has
become a global leader in solar panel production. The tariffs depressed
the stock market when they were announced.
The Trump administration is developing further anti-China protectionist measures,
including more tariffs. It wants China to remove requirements that U.S.
companies transfer technology to Chinese firms. China requires
companies to do this to gain access to its market.
Trump also asked China to do more to raise its currency. He claims
that China artificially undervalues the yuan by 15 percent to 40
percent. That was true in 2000. But former Treasury Secretary Hank Paulson initiated the U.S.-China Strategic Economic Dialogue in 2006. He convinced the People's Bank of China to strengthen the yuan's value against the dollar.
It increased 2 to 3 percent annually between 2000 and 2013.
U.S. Treasury Secretary Jack Lew continued the dialogue during the Obama administration.
The Trump administration continued the talks until they stalled in July 2018.
The dollar strengthened 25
percent between 2013 and 2015. It took the Chinese yuan up with it.
China had to lower costs even more to compete with Southeast Asian
companies. The PBOC tried unpegging the yuan from the dollar in 2015.
The yuan immediately plummeted. That indicated that the yuan was
overvalued. If the yuan were undervalued, as Trump claims, it would have
risen instead.
Losing streak: The greenback finished the first half of 2017 on a four-month losing streak – the longest such stretch since 2011. – AFP
After the worst start to a year for the greenback since 2006, the end of the first half couldn’t come quick enough for the dwindling ranks of dollar bulls. Yet if history is any guide, it could soon get even worse.
A week that’s certain to get off to a slow start with U.S. markets closed Tuesday will culminate with Friday’s jobs report. The release hasn’t been kind to those wagering on greenback strength. The Bloomberg Dollar Spot Index has slumped in the aftermath of nine of the past ten, despite above consensus reports as recently as February, March and May.
“The dollar has not been responding to positive data surprises, but continues to weaken substantially on negative news,” said Michael Cahill, a strategist at Goldman Sachs. “As long as that persists, the risks are skewed to the downside going into every data release.”
The greenback finished the first half on a four month losing streak -- the longest such stretch since 2011 -- wiping out its post-election gain. The currency’s 6.6 percent decline in the six months through June were the worst half for the dollar since the back end of 2010. Unraveling optimism around the Trump administration’s ability to boost fiscal growth has outweighed Fed policy or positive data, according to Alvise Marino, a strategist at Credit Suisse.
“What’s happening on the monetary policy front is not as important,” said Marino. “It’s more about the dollar remaining weighed down by the unwinding of financial expectations.”
The sudden hawkish tilt by global central banks hasn’t helped. The dollar weakened more than 2 percent against the euro, pound and Canadian loonie last week as officials signaled a bias toward tightening monetary policy.
Yet there are reasons for optimism, according to JPMorgan Chase analysts led by John Normand, who recommended staying long the greenback in a June 23 note. A cheap valuation relative to global interest rates, the market underpricing the likelihood of another Fed hike this year, and a still positive growth outlook make for a favorable backdrop to motivate dollar longs in an “overstretched” unwind, the analysts wrote.
Hedge funds and other speculators disagree. They turned bearish on the dollar for the first time since May 2016 last week. Wagers the greenback will decline outnumber bets it’ll strengthen by 30,037 contracts, Commodity Futures Trading Commission data released Friday show.