Are we in the midst of or heading towards a US dollar doom loop? What this would imply is that the USD is likely to appreciate against a basket of currencies for a considerable amount of time. Reasons for this possibility include the global economic slowdown, which puts downward pressure on many commodity prices, and with current geopolitical risks and the COVID19 – there is a flight to safety underway in the USD. Also, and quite importantly, is the amount of global USD denominated debt that exists and is coming due over the next few years – especially in emerging market economies. Couple this with lower commodity prices, which is what primarily sustains emerging markets, and the amount of debt they have coming due, and it’s easy to see the writing on the wall.
These very emerging market economies are hit with a double, if not triple whammy. Slowing growth generally speaking. Lower commodity prices. And a stronger USD. All of this combined means that these very countries are going to need to expend even more of their domestic currencies in order to buy USD so that they can pay back their debt holders. Get the picture? When will this end is anybody’s guess, but it’s likely to continue to for the foreseeable future considering the massive amount of global debt on every balance sheet imaginable – household, corporate, government, and central bank. This is quite figuratively – the everything bubble.
This is why we are seeing many markets that typically move opposite each other, moving in tandem. Such as USD and gold price strength. Their is also a large divergence between the US stock market and US government debt. The stock market is painting a picture of strong and vibrant growth ahead and the bond market is forecasting slower growth for years ahead. They cannot both be right. Time will tell – as it usually does, but a US Dollar doom loop is in progress and it’s effects will be felt globally. Stay diversified, stay vigilant, and stay with The Kapital News. #USDollar #Oil #Recession #Economy #EndTheFed #Coronavirus