The Dollar Versus The Field


It's no secret that the world prefers the US dollar as the reserve currency of choice.  In fact, the dollar outperforms competing currencies so well that there's more dollars held in foreign reserves than all other global reserve currencies combined.  The dollar index enjoyed a downright dominant six-month stretch, growing by .7%, where it's beaten every currency on the planet except for eleven small-fish competitors such as the Seychelles rupee and the Burundi franc; against major competitors only the Taiwanese dollar has grown in value by a paltry .11%.  In comparison to a few currencies where poor or negative GDP growth hold firm, furthermore, the dollar has delivered a KO punch: American tourists have it easy in Russia, where the ruble trades fifty-to-one for the greenback for the first time in well over a decade.  Has the dollar truly defeated all comers, or does a currency correction lie on the horizon for our trigger-happy currency?

Against The Euro

No currency on Earth represents a larger thorn in the side of American economic policy than the Euro, which has the frustrating tendency to rise during periods of poor growth when the US needs a shot in the arm for our exports.  To say that we've cleaned the Euro's clock during 2015 would be no exaggeration: the Euro lost no less than 13.22% against the dollar during the first quarter of the year, a worse performance than any major currency except Brazil's real.  While the dollar has cooled off since the middle of March, including five straight weeks of losses during April, the greenback enjoyed the largest one-day gain of the year against the Euro during May.  Much of the dollar's gain comes at a time when questions about a Greek exit (colloquially known as a "Grexit") have pushed the Euro into the dirt while the European Central Bank begins to kick asset purchases into high gear.  There's little good news on the horizon for the Euro: in addition to questions about keeping or removing certain nations, the EU will likely experience little to no growth in 2015.  While a poor EU market limits US exports, it drastically strengthens the dollar's buying power, more so than any other economic influence.

Against The Yen

The Bank of Japan has proven to be one of the most conservative central banks in recent world history, preferring not to raise interest rates in order to facilitate carry trades and keep exports humming along.  That policy has resulted in massive deflation of the yen, with the last month of inflation taking place in May of 2012.  As any economist may explain, deflation poses serious threats for consumer-based economies since it inhibits purchasing power, while inflation keeps spending humming along thanks to the knowledge that the price tag won't drop in the near future.  The dollar's performance relative to the yen has been a tale of contrasts: the USD/JPY Forex hit an eight-year high in March but has been locked in stalemate since neither nation appears willing to budge on interest rates.  Unless Japan opts to increase spending from 80 trillion to 90 trillion yen, as high-profile politician Kozo Yamamoto has urged Prime Minister Shinzo Abe to do, the yen will continue to struggle against the dollar.

Against The Pound

What a difference a good economy makes.  As Europe wilts, Britain has emerged from the early months of 2015 with .3% GDP growth, a 50% better growth rate than the United States and significantly better than neighboring island nation Ireland, who has had no GDP growth in the past year.  Pound Sterling ten-year bonds have risen to a seven-week high as the BOE sold three billion pounds (approximately $4.6 billion) of bonds due to mature in 2025.  The pound today is the highest it's been since February, which has facilitated interest hikes to capitalize on the good times while they last.  As the Conservative Party and David Cameron retain their political grip on the UK, the markets have cheered on the victory.  The FTSE, which serves as the lifeline of the British economy much as the Dow Jones serves for the American economy, rose 2% after the election.  The pound gained about 1% as well.  No other major currency has scaled in growth relative to the dollar as successfully as the pound -- over the past five years the pound has never gained or lost more than 10% relative to the greenback.

Against The Canadian Dollar

A resurgence in the price of oil has kept the Canadian dollar from series issues.  Canada relies on petroleum for a full 20% of its exports, meaning that the drastic decline of crude prices threatened to push the nation into a recession for the first time since the global financial crisis.  In a world that's playing chicken regarding their currency's monetary policy, the Bank of Canada proved to be first to jump into the pool and brave the cold water.  In January, the BOC decided to take steps to facilitate currency controls by raising interest rates, a move meant to ensure that better returns on energy would not go wasted.  Indeed, with oil on the rebound, the Canadian dollar has rebounded to a degree.  After peaking at 1.30 per USD in March, the Canadian dollar has improved to 1.23 today, which means April has been the best monthly rally for Canada against the United States in the past six years.  As Canada's economy often mimics the United States', a stronger Canadian dollar will likely follow our dollar in the near future, but likely won't gain as much value unless a large spike in oil value accelerates the ailing Canadian energy market.

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