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Dollar dives and what they mean

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The failure of Trumpcare II healthcare reform in the US hastened the decline of the dollar. The dollar is fundamentally overvalued and depends on flows from international investors. International investors tend to understand domestic political risks less than domestic investors, and therefore tend to overreact to political change.
  • Does dollar weakness damage economies like the Euro area? Not really. The move is not that exceptional. Volumes of exports to the US are unlikely to be impacted, as (aside from commodities exporters) export prices do not tend to change as currencies move. Profits are hit, but economists are unconcerned with vulgar things like profit.
  • The other currency to weaken has been the pound sterling, as inflation numbers came in lower than expected. This is not an especially rational reaction – the Bank of England is unlikely to be swayed one way or another by a single data point.
  • The data calendar is a wasteland of nothingness. There are some construction data from the EU and from the US, but little else. The UK-EU / EU-UK divorce talks continue, with little progress on the cost of the divorce and little interest from anyone other than policy geeks at this stage.