A Lack of Dollar Volatility in 2023 So Far
November 28, 2023
With only a month left in 2023, this year ranks comparatively low in net dollar movement against other highly traded currencies. The range against the euro from a high of $1.0506 in October from a low $1.1243 in July constitutes a trading range spread of just 7.0%, and the current rate of $1.0993 is a mere 1.1% above the range midpoint. Likewise, the 8.7% range width from a low against sterling last July to $1.2079 high last month was also less than 10%, and the dollar is current a mere 0.7% above its range midpoint. In the Swiss franc’s case, the high-low range width has been 10.5%, and the dollar is currently 2.5% stronger than the range mid-point.
Among other major currencies, the weakest this year has been the Japanese yen. At the yen’s strongest point in January, a dollar exchanged for 127.9 yen, but this month saw the dollar peak at 151.7 yen. That’s an 18.6% high-low range width, and the dollar is 5.5% above the range midpoint currently. Like the Swiss franc, the yen is especially vulnerable to currency markets that are influenced largely by higher interest rates and monetary policies that are tightening. Both Japan and Switzerland have relatively low interest rate levels.
As 2023 turns into the home stretch, the dollars outlook, if not for 2024 exactly but rather for what is to follow appears unusually bipolar. Such hinges on the U.S. election just 11 months away. Former President Trump has a solid lead to be the Republican presidential nominee and, if so, more than an even chance to do what only one person beforehand has accomplished, serving multiple non-consecutive terms. That feat is not why the election looms as the pivotal event of the twentieth century. What does matter is that Trump is seeking a second term with one paramount objective, retribution. Everything that America has stood for since the signing of the Declaration of Independence would be in peril. Since the end of the Second World War, the dollar has been the unchallenged linchpin of the international monetary system, a role that stems from America’s military and economic strength, but even more so from intangibles like the checks and balances built into the constitution, the rule of law, political stability, natural resources, and critical geographical protections that other countries do not have. Trump’s plans would throw much of that away in favor to the autocratic systems favored by China, Russia, Hungary, Iran, and Poland. Perhaps not immediately after such a Rubicon is crossed, the dollar would no longer be trusted in its current hegemony among currencies that, say, the yuan, rouble, forint, rial, or zloty.
2024 offers Trump the last reasonable opportunity to recapture the U.S. presidency, and the dollar would most likely continue to be the favored reserve currency for decades to come if that quest falls short. And since next year’s U.S. election offers a choice of vastly different scenarios for the rest of U.S. history, it would not be surprising to see the dollar remain in the choppy but trendless pattern next year that has characterized 2023. Scope for depreciation will be limited by the Fed’s determination not to cut interest rates by much, if at all. Scope for appreciation will be countered by the mother of political uncertainties, not just for the United States but rather for the entire world.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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