Wrong on the dollar – for now

NEW HAVEN – I should have listened to Alan Greenspan – at least when it comes to currency forecasting. The former chair of the Federal Reserve once told me it was a fool’s game, with the odds of getting currency calls right worse than a successful bet on a coin toss. Two years ago, I ignored the maestro’s advice and went out on a limb, predicting that the US dollar would crash by 35%.

After a tantalizing 9% decline in the second half of 2020, the broad dollar index – the real effective exchange rate as calculated by the Bank of International Settlements – has gone the other way, soaring by 12.3% from January 2021 through May 2022. That puts the dollar 2.3% above its level in May 2020, around the time I made this seemingly foolish call. How did I get it so wrong? 

Three factors shaped my thinking: America’s current-account deficit, Federal Reserve policy, and TINA (“there is no alternative”). I argued that the external deficit was…

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