The US dollar is on track for its worst year in modern history

Looking at the scale of a few years, the dollar has been insanely overvalued post-COVID.

Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point. Recently it's been bouncing around at nearly 1 euro=1 dollar.

Then there's the yen. Used to bounce around between 1 dollar = 100~110 yen. Recently reached 1 dollar = 162 yen.

The dollar losing its value is a return to the pre-covid norm. Lots of countries pumped money into the US to make money off skyrocketing stocks and high interest rates, and now they're pulling it back into their countries. It's a high that can't last forever. And if it did last forever, that would not be good for the world as a whole since it would mean every country is supporting the US at the cost of devaluing themselves.

I think the bigger problem is the reason why people are pulling back their money from US markets.

> the dollar has been insanely overvalued post-COVID.

That's an odd way of saying the US doubled it's federal budget from $3T to $6T in response to COVID and has now ensconced this pork further into law. Under a "republican" administration, no less.

> The dollar losing its value is a return to the pre-covid norm.

Which is to say that even $3T contained an unjustified amount of debt spending just not as obscene as it is today.

> It's a high that can't last forever.

That's the "big beautiful bill" for ya.

> Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point

That's what inflation does.

People are routinely taught that inflation is the “decline of value of money”, but that's not the reality. Inflation is just the increase in consumer price, which is perceived as a decline in the relative value of the money, but its absolute value on foreign markets isn't (directly) affected by inflation.

And when the Central bank raise the interest rate to cool the economy down and temper inflation, then the absolute value of the money rises (because the higher the interest rates, the pricier the currency on the FX market). This increase in the currency value in turn also helps fighting inflation because it lowers the cost of imported goods.

So, indirectly, because of the central bank's reaction, inflation is actually increasing the absolute value of money, and this is what we saw in 2022 when the Fed raised the interest rates 9 month or so before the ECB start doing the same (because the inflation came in advance for the US compared to EU).

> Under a "republican" administration, no less.

Are you under the impression that this is surprising? Republicans are consistently the ones spending more when they are in power. It's time to dispel this myth that they are fiscally "conservative", they have presented more unbalanced/defficitary budgets than Democrats and the latter in recent memories are the only ones who managed to present budget with surpluses, under Clinton.

It's fairly obvious the reason he put it in quotes was because the Republicans and conservative movements claim to be all about "fiscal prudence and discipline", when in reality they're the ones responsible for the ballooning deficit.

Corruption has been compounding. Malicious business interests don't actually care which party has power. Just that they have access. It's telling that you have to reach back 30 years to find an example where the budget was balanced for one single year.

>it would mean every country is supporting the US at the cost of devaluing themselves.

That's what they want as export based economies.

Not when you get to the point where your currency is so devalued that importing raw materials necessary for those exports becomes expensive, and basics like food and fuel become unaffordable for locals, as is the case in Japan.

A balance is necessary, and things have been off balance recently.

US markets have been flying high since COVID. Much more than other countries' markets. Why not take profit when US markets + dollar is at a high?

Why are you ignoring the real reason?

Because emotions are terrible investment strategies

The yen has other reasons to be weak though, namely that Japan barely increased interest rates as compared to the US.

European interest rates are crazy low, that's why.

It is a myth, there are only a few Republicans that organize around the concept of spending less.

Both sides of the gerontocracy are happy to improve their lives while not planting seeds for the future.

Lower than their 2024 peak, but still much higher than before 2022 where for a long period it was at 0% or even negative interest (apparently, I don't know much about these things). It's at 2% or 2.4% at the moment, last time it was around that was in 2008. See https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...

But I'm no economist and don't know what these numbers mean or what the consequences are.

It's an irony, not ?

Donald Trump has stated that he wants to weaken the dollar. It seems that he is succeeding.

My guess is that he wants to make it more attractive when it comes time to refinance the large portion of American long-term debt. He also wants to keep the interest rates low for the same reason.

My questions is: What is causing the actual slide? The concrete mechanics and motivations that are causing people to sell USD.

Like a fly in my Chardonnay.

If a dollar used to equal 100 yen, and now the dollar is worth 162 yen, isn’t that moving opposite to the stated direction?

And what do you think the real reason is?

Devaluing the dollar is 100% the goal. It's literally noted as a key component in what the people running US trade policy now said they wanted to do, before joining government.

It has the side effect of boosting nominal investment value (even if real value stays flat or decreases), maintaining political support from people who can't do math. The numbers continue to look good, but outcomes worsen.

There are two flies in this ointment: international capital response and inflation.

The latter is why Trump has been spending political capital on demonizing the Fed and Powell. The house of cards collapses if actual inflation bites and reveals the game.

As to the former, it's tough to look at the situation and see US debt / equities as attractive as they once were:

1. Unsustainable US budget deficits

2. Political threats against the US central bank

3. Tariffs

4. Decreased immigration and worsening demographics

These do not explain how DXY[1] had been rallying up and started falling at the end of September 2022. At that time, if you don't recall, Trump was facing prison time and the US government was in the reliable hands of the most popular president ever with his cabinet of brilliant minds.

1. https://www.tradingview.com/symbols/TVC-DXY/?timeframe=60M

Economic instability and uncertainty. How high it is compared to other markets is debatable it has increased significantly this year due obvious reasons, though

Which would mean that the Euro would depreciate significantly against the dollar under normal circumstances.

Yet the Euro increased by > 10% despite the ECB cutting the rates quite significantly. Imagine how low the dollar would go if the Fed listened to Trump and cut to 1%..

In general lower interest rates would cause your currency to depreciate.

It's kind of jaw dropping to see people here continually avoid the elephant in the room, same thing in discussions about Tesla sales.

It wasn't at all obvious if it was ironically poking fun at that claim or that they genuinely believed it.

The points avoiding the elephant in the room are basically deliberate, in support of the elephant. They think the elephant is some good thing that is going to destroy the woke, or inflation, or the immigrants, or whatever the hypocritical bogeyman is next week. But it is certainly not poised to destroy them, because they are the true patriotic Americans, don't you know. It is only everything else about this country that is wrong. And as soon as the elephant is done wrecking everything that is bad, their own true brilliance will be allowed to blossom. Or at least so they seem to think.

Or, take a look at measures objectively instead of predeciding whose side you want to be on.

https://finance.yahoo.com/chart/AAAU

S&P500 literally at an all time high.

Even I wasn't paying attention for a few days (just flew to Canada from Europe).

So my theory of profit taking seems right, back to fresh highs.

> S&P500 literally at an all time high.

It still has 10% to go to surpass its previous peak if measured in euros. Which is kind of the point.

Currency depreciation is usually good for the local stock market, that’s not too surprising.

Since Trump’s inauguration even the STOXX 600 managed to outperform the S&P 500 which is something that almost never happened.

The US Market is definitely more optimized more than say European, at the sacrifice of the common good of the people and to the advancement of broligarchs. Trump is doing is best to kill even that (I think it's not his intention, he's just not good with money), via tariffs and crazy economic policies and promoting even bigger deficits than we had during covid. I'm not sure how much longer it can fly high though.

Policy is not emotional. There is such a thing as good policy, and bad policy. And, ironically, failing to call obviously bad policy bad is emotional.

Yes, and then took those cuts and blew them out of the water with irresponsible spending in the form of "tax reform".

Nobody is going to see any benefits from those Medicaid cuts. We're much, much further in the hole then we were before.

Right, because the guy after Clinton decided to cut taxes and start multiple wars that would last decades. You can do better than a gut "both sides" reaction.

Those "malicious business interests" clearly prefer the republicans, judging by how much more money their last campaign received from wealthy corporate donors.

But indeed, the dems are controlled opposition at this point. Most of them oppose progressive ideas, at least as much than the republicans.

I don’t disagree. But it’s also true that this will set precedent for future entitlement cuts. Younger people are not served by having entitlements treated as a sacred cow. I am in the opposite camp, cuts will and already have hurt me. I just wonder if maybe we should stop perpetuating a multi-generational Ponzi scheme that allows any generation with large enough numbers (eg baby boomers) to steal all the money from the cookie jar and spend it before anyone can figure out what the heck happened. Maybe that’s a problem with democracy more generally, but that it is a problem cannot be denied. If the dominant age cohort in power is over 85 they will have little incentive to worry about the budget ir nation beyond 5 or 10 years, let alone 80 to 100 years that are relevant to today’s youngest citizens. Not that we should ditch democracy but maybe we should limit entitlements to prevent abuse.

I don't think it's a ponzi scheme and I reject the notion it's unsustainable. Our social services are quite poor when compared to the rest of the developed world, and they seem to have figured it out.

I'm not saying we need to become Western Europe, but I am saying that it's certainly possible to have public services such as public healthcare support in the form of Medicaid sustainably.

Repeatedly, conservative fiscal voices proclaim we must cut social services in order to improve our quality of life and economic status. "Starve the Beast" has been the policy of choice for fiscal conservatives for many decades now. And, well, is it working? From where I'm standing, no. Nothing is getting cheaper. Everything is a little bit harder. And the private sector is decidedly not picking up the slack. And, I certainly do not have a lower tax burden. Why do we keep doing things when we appear to have decades worth of evidence that it does not work. I don't know, to me, it feels like insanity.

I think the most damning example is healthcare. We have private health insurance in this country and it's just bad. I don't even think we're at a point where we can humor people who say it's not that bad. No... it's bad, objectively, from every measure. We pay more per capita than any other country, including taxes, and our outcomes are consistently worse. It's losers across the board. But now we're going to be leaning into that even more with these Medicaid cuts. Which will, I'm convinced, greatly increase private insurance premiums. Sigh...

It’s not a Ponzi scheme, it’s successful class warfare. We had a balanced budget at the turn of the century and could easily have addressed the Medicare gap by removing the tax giveaway to the wealthiest and reforming our healthcare system to be more like literally every peer country in the world.

Instead, we blew an enormous hole in the budget with Bush’s tax cuts and wars of choice, followed by bailing out the bankers’ fraud under Obama, and then adding trillions more debt with Trump’s first tax plan. At each and every time, we could have hit financial stability by taxing the wealthiest quintile slightly more but instead chose to take on debt giving them a tax cut instead. The way you’re talking about it as a generational issue rather than a “tax rich people like it’s 1990” issue illustrates how successful the generations of propaganda have been furthering the goal of rolling back the New Deal despite every bit of sober analysis showing that social services have significantly transformed millions of lives and restoring taxes to sustainable levels at the top brackets would have minimal impact on the rich.