Dollar Frequently Softens in the Last Two Weeks of December
December 17, 2023
The most widely followed bilateral relationship in the first quarter century of the era of flexible dollar exchange rates was that against Germany’s Deutsche mark. After 1998 the euro assumed the role of dollar performance bellwether when eleven European countries adopted the euro. That group claiming the euro as their money has subsequently expanded to twenty participating nations.
As laid out in an earlier update on this web site, the earliest years of flexible exchange rates were characterized by a powerfully consistent downward tendency in the dollar against the mark between mid-December and yearend. In the 14 years starting in 1974 and running through 1987, the dollar fell 13 times, posting an average loss of 1.3% against its European rival. That pattern faded subsequently and, as noted, was imperceptible in 2005-14 when the average net movement late each year was zero percent.
The long-ago late year pattern may again be relevant. Most recently, the dollar has depreciated versus the euro between mid- and end-December in each of the past seven years, dropping 1.1% in 2016, 2.1% in 2017, 1.2% in 2018, 0.7% in 2019, 0.5% in 2020, 0.8% in 2021, and 0.6% in 2022.
As the disclaimer goes, past performance is no guarantee of future results, but it helps to be aware that the period surrounding the end of each calendar year has one of the few track records of seasonal dollar bias. One shouldn’t be surprised to see the dollar soften against the euro at this time of year, nor should one necessarily read too much into such a movement, since depreciation is apt to reflect seasonal bias rather than underlying trend to a greater extent than at other times of the year.
As a matter of fact and as the linked December 2015 article above also mentions, there also had been a tendency for the dollar during the first half of January to recoup ground lost late in December: “From 1975 to 1988, corresponding to the 1974-1987 late December period mentioned above, the dollar advanced in 10 of 14 years and rose on average by 0.9% against the mark between the yearend closing and January 15” of the ensuing calendar year. Over the decade through 2014, the dollar at the start of each year on average rose by 1.1% against the euro through mid-January. Since 2015, however, the dollar has fallen more times than it rose in early January, sliding against the euro by 0.4% in 2015, 1.1% in 2016, 2.1% in 2017, 0.6% in 2022, and 1.0% in the current year, while rising 0.3% in 2018, 0.6% in 2019 and 1.1% in 2021.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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