In Defense of the US Dollar

Like the late comedian Rodney Dangerfield, the dollar has been getting "no respect" recently. A few officials of the Trump administration want to see a weaker dollar. America's adversaries would like to replace it as a key currency. Doomsayers predict a major dollar crisis in response to the huge US trade and federal government deficits. We remain constructive on the dollar for the following reasons:

(1) The DXY dollar index remains in an upward channel, though it is retesting the lower bound of that channel (chart). DXY is a fixed-weight index that measures the value of the US dollar against a basket of six major foreign currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. The euro makes up nearly 58% of the index. It is unlikely that the euro will replace the dollar as the leading reserve currency, in our opinion.