The US Dollar broke through resistance and now is currently at 94.4. This is a measure of the strength of the dollar relative to the overall currency market.
Some background on the effect a strong or weak dollar has on trade and the pricing of goods. A strong dollar portends that another countries currency is weaker against the dollar so products which are import from that country will be cheaper because they are priced in the foreign currency. A weaker dollar will do the opposite and the import will be more expensive in terms of the dollar. This is not addressing any effects a tariff will have on the price.
Most would be of the opinion that a strong dollar is good and in some respects it is. The bad thing about a strong dollar is when the US exporters try to sell their products these will be more expensive for the foreign country and either the foreign country will purchase a substitute product from other country or purchase less. The loss or lessening of sales will affect the balance of trade between the countries.
Another factor which is not so apparent is the feds on going plan to reduce their balance sheet. This plan is to reverse the QEs which expanded the fed’s balance sheet from about $900 billion in 2008 to about $4.5 trillion today. The shrinking of the balance sheet is taking about $30 billion out of the economy per month. At the same time, the ECB is pumping about 30 billion euros per month into their economy.
The feds have been raising the interest rates from 2016 albeit at a snail’s pace. The ECB still has negative rates. The end result is the dollar strengthening and signs of deflation are beginning to rise. The signs can be seen in the foreign markets.
Brazil’s market is down 20%, South Africa is down 17% and Turkey is down 32%. The Asian markets are also experiencing the effects. This effect is due to the amount of US dollars still held in the global markets. There is over $9 trillion in debt held globally and about $6 trillion of this is held by emerging market countries.
This might be the reason why countries are working to repatriate their gold and reduce their reliance on the USD. If this trend does not reverse, you can expect that the US (fiat) dollars will soon be flooding back to the American shores.