The US Dollar is getting pounded. It now stands at its weakest level since the weeks following investment bank Lehman’s collapse last year.
This shows us that investors are buying into the idea of a global economic revival. That’s buoying appetite for risk and driving demand towards riskier assets such as equities and commodities... and away from the ‘safety’ of the dollar.
Below you’ll find a one-year chart showing the Dollar Index, tracking the currency’s performance against the euro, yen, pound, Swedish krona, Canadian dollar and Swiss franc. It recently reached its lowest point since 29 Sept (circled) which was two weeks after Lehman’s bankruptcy filing.
The dollar has declined sharply against other major currencies since March this year
Source: Bloomberg
The index has been trading in the 78 to 84 range for June and July. And it’s now dropped 13% since this year’s early-March high of 89.
The greenback’s fall against major currencies is a sign of change in investors’ sentiment. But this renewed demand for riskier assets is based on hope rather than tangible results.
We haven’t seen concrete and sustainable global economic recovery signs yet. So it’s very likely that there will be another switch in investors’ risk appetites. A whiff of bad news about the world’s economy and folks could buy back into the dollar in a flight to safety.
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