Financial markets are always full of surprises. Many old timers will attest to this.
“Thirty years ago,” wrote Buffett in 1994,” no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.”[1]
And Buffett has been in the investing business since late 1940s. Being one of the richest investors around, he definitely knows a thing or two about financial markets.
What’s the surprise this year? One is the swift and sudden decline of the US dollar.
About a month ago, I wrote about the Swiss Franc as an haven asset. This week, USD-CHF has plunged to the lowest level in years (CHF stronger).
Moreover, the US dollar has also slumped – to new long-term lows – against many currencies, including the Swedish Krona, Norwegian Krone, British Pound and the Euro.
Another FX pair that caught my attention was the USD-Singapore Dollar rate.
As you can see from the chart below, greenback has declined substantially against the currency of the prosperous city state. The rate broke beneath its 2025 support this week to trade at its lowest level since 2014.
This begs the question: Why are investors dumping the US dollar?
Remember that it takes a lot of selling around the world to move the USD. It is like a supertanker – re-directing it takes time and effort.
The first reason that springs to my mind is governance. We all know what had happened over the past month, so there is no need to re-cap those events here.
Perhaps investors were deeply spooked by these unexpected developments. The result? “De-risking” from the dollar. When a regime starts to behave erratically, capital tends to exit quickly.
Another reason could the forthcoming accommodative monetary policy. A new Fed chair looms.
In sum, the dollar is under increasing pressure. This ‘surprising’ trend may continue to overshadow markets in the months to come.
