The Dollar is on a Tear

strong-usd

NEW YORK, Jan 3 The U.S. dollar rose to its highest in 14 years against the euro and a basket of major currencies on Tuesday after data showed solid growth in U.S. manufacturing.

The dollar index rose to 103.820, its highest level since December 2002 after data showed U.S. factory activity accelerated to a two-year high last month and construction spending rose to its highest in 10-1/2 years in November.

The index, which tracks the greenback against a basket of world currencies, appeared set for its biggest one-day percentage rise in more than two weeks in 2017’s first full day of trading.

“Job growth appears to be picking up, orders are picking up quite strongly, prices are increasing quite strongly as well,” said Shaun Osborne, currency strategist at Scotia Capital in Toronto. “That suggests the (Federal Reserve) is going to have to remain active in this kind of environment. So this on the whole is a generally constructive set of data for the dollar here in a time of the year where typically the dollar does quite well.”

The almighty greenback continues to channel his inner LBJ and flaunt his girth to the annoyance of his peers (dick analogies get dude pronouns)*. The US dollar index reached its highest level in 14 years, topping off at 103.820.

Note: The US Dollar Index (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of US trade partners’ currencies. These currencies include the euro, Japanese yen, Canadian dollar, British pound, Swedish krona, & Swiss franc. (Wikipedia)

This continued strong performance was largely driven by the release today of strong US manufacturing data:

  • US factory activity accelerated to a 2-year high in Dec’16
  • US construction spending in the sector rose to its highest in over a decade in Nov’16

This information reinforces the all-around growth seen in manufacturing regarding jobs, prices, & orders for goods. Also, early Q1 has historically been a favorable time for US manufacturing (don’t have any sources for this except econ classes & wikipedia).

However, the primary foundation of the strengthening strong dollar is the confidence of investors in the Trump-run American economy. The overwhelming perception is bullish despite the doomsday talk regarding DJT’s imminent inauguration:

“Even though there’s a lot of doubt and uncertainty and a lot of weird rhetoric in the U.S., market participants are giving the benefit of the doubt to an administration that is going to be very pro-business,” said Juan Perez, currency strategist at Tempus Inc in Washington.

Haha, “weird rhetoric”. AKA the Donald throwing twitter haymakers that upend socio-economic & political status quos. Regardless, cautious optimism is clearly in vogue even with the implicit volatility that comes with Trump at the helm. Whether or not Trump will live up to the pro-business expectations of market participants will have an unequivocal impact on the strength of the dollar. The ability to stay in front of President Trump’s wake will be crucial to successfully reading the market and the dollar’s strength throughout his term(s?!). Let’s check back in a few months weeks days to see how the USD is faring.

*For those who need a little background on Lyndon B. Johnson: From an excerpt of Robert Caro’s biography, via the New York Review of Books (http://gawker.com/lbj-was-obsessed-with-his-dick-1694599317):

“He early became fabled for a Rabelaisian earthiness, urinating in the parking lot of the House Office Building as the urge took him; if a colleague came into a Capitol bathroom as he was finishing at the urinal there, he would sometimes swing around still holding his member, which he liked to call “Jumbo,” hooting once, “Have you ever seen anything as big as this?,” and shaking it in almost a brandishing manner as he began discoursing about some pending legislation”.

Source: http://www.reuters.com/article/global-forex-idUSL1N1ET0P3


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