The greenback’s turning red as panic leaves the market.
The U.S. dollar index (@DX) fell 0.69 percent yesterday, its biggest decline in two months. Meanwhile, global stocks and commodities kept climbing from long-term lows.
An end to the trade war? Maybe. In the morning, Bloomberg reported that China would cut import tariffs. Earlier in the week, Washington and Beijing slapped duties on each other, but the value was lower than feared.
Besides, clients have known this risk for months. Most have heard the adage “sell the rumor, buy the news.” Well, in this case the rumor was the fear of tariffs. And now that they’ve taken place, there’s nothing left to do but “buy the news.”
Developments outside the U.S. are also positive for foreign currencies, and thus negative for the dollar. Europe’s central bankers are willing to unwind some of their super-easy monetary policy. Minor crises in Turkey, Argentina and South Africa also seem to have run their course.
Another interesting trend: low inflation in the U.S. August’s consumer-price index and producer-price index both missed expectations by wide margins. That argues against a ton of aggressive rate hikes by the U.S. Federal Reserve, which is also dollar-negative.
Assets that benefit from a falling greenback are also going up, led by emerging markets like Brazil (EWZ) and Russia (RSX). Ditto for gold miners (GDX).
In conclusion, the U.S. dollar had a strong rally this spring, but now there are signs its longer-term downtrend is resuming.