This year is starting off just like it did in 2017: a huge dip in the U.S. Dollar Index. Even the loss magnitude is almost identical. Last year, the dollar index slipped 3.2% in January. With only two more trading days left, the greenback is staring at yet another 3% loss.
With no other supporting factors in sight, the rest of 2018 could be a rough one for consumers. Despite several weeks away from the winter holiday season, gas prices are through the roof. More worrisome from an economic growth perspective, gold prices have surged in recent trades. Although a positive for gold investors, bullion’s rise confirms inflationary pressure.
Based on the technical charts, the markets will likely continue to discount the greenback. The dollar index is attempting to find any type of support as it continues its long trek down. However, these respites are extremely temporary. Before the year is over, I fully expect the dollar index to drop to 82 points, perhaps even down to the 79 level where strong support lies.
Even worse, other nations’ currencies are likely to rise in comparative value, further pressuring the inflationary condition. The Japanese Yen appears to be building support, and may even push to the 100 level this year. Keep in mind that Japan’s economic growth, though still challenged, is gaining positive momentum. Also, their hosting of the 2020 Summer Olympics should attract significant foreign revenue stream.
Similarly, the Euro currency is taking off like a rocket, providing no opportunity for the greenback to mitigate its slide. Curiously, the current administration shows no apparent interest in boosting the dollar index, content with the old adage that a weak dollar facilitates favorable trading conditions.
Unfortunately, due to our stringent labor laws and poor fiscal policy, the U.S. export industry is largely uncompetitive, even with the benefit of a “cheaper” currency. So while some products will find a lift in export sales, the net impact will likely be disappointing.
This also means that true economic growth will be a pipe dream, further hurting American consumers. Although the labor market is robust on paper, no one can get ahead due to the declining purchasing power of the dollar.
Another concern is the stock market’s lofty valuation. Rising gold prices indicate that equities are generally priced above fair market value. If so, we could expect a correction, which may take down what little real progress we made in the employment sector.
All in all, for anyone without a firm financial plan, 2018 is signaling a rough ride.