Is The Dollar As Weak As They Say?

The US Dollar Index (DXY) is down 8.8% since the start of this year (chart). That has sparked lots of angst, the worry being that this might be just the beginning of a secular decline in the dollar because the US seems to be on course to decouple from the global trading system and become more self-sufficient. If Washington's policies reduce America's trade deficit, there will be fewer dollars for foreigners to invest. That could cause bond yields to soar in the US, possibly triggering a debt crisis if nothing is done to narrow the federal government's budget deficits. In this narrative, the dollar will increasingly lose its reserve currency status. The US is just the latest in a string of historic empires that have seen their currencies fall along with their global power.

Sorry, we aren't buying the latest eulogy for the United States and its currency. DXY remains on an upward trend that started around 2010, when it became increasingly obvious that the US recovered from the Great Financial Crisis better than the other major economies and financial systems (chart). The US capital markets remain the biggest and most liquid in the world. That's not going to change anytime soon.