The US dollar is down, but it has a lot going for it

Almost every commentary on currencies that you read these days is bearish on the US dollar. Although there are many valid reasons for this, much less is said about the forces supporting the dollar, especially those of recent origin, which are also powerful. What will happen on balance is hard to say, and the longer the time horizon, the harder it gets – exchange rates are notoriously difficult to predict and are subject to not only economic but also political and psychological forces. But it’s important to get both sides of the story – the bearish as well as the bullish.

Having

weakened more than 10 per cent since January

against a basket of six other major currencies, the US dollar has had its worst first half of the year since 1973, after the “Nixon shock” of 1971 when the US severed the dollar’s peg to gold and a major oil crisis hit the global economy.