There and back again: the dollar’s fall and rise

The DXY (US dollar, trade-weighted) Index started life in 1973 in the wake of the disintegration of the post-World War II Bretton Woods system of managed exchange rates. Its value at launch was 100. Since then through wars, stock market crashes, the fall of the Berlin Wall and the invention of the World Wide Web, the DXY has waxed to 165.7 in February 1985 and waned to 70.7 in March 2008. Today it is almost back where it started at 100.

A 43-year round trip sounds exhausting, but for investors who timed their exit and entry points well, the US dollar has also been rewarding. As the world’s premier reserve currency it is highly liquid and readily tradable in spot, forward and option markets. Currently the dollar is close to a 12-year high and our base case is that diverging economic fortunes coupled with policy divergence and repatriation flows will continue to support the dollar in 2016.

 Paul Lambert – Insight, a BNY Mellon company

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