Much has been discussed about the strength of the U.S. dollar over the past year. Yes, it has been stronger than other currencies over that time. However, I may be among the first to report that the dollar has been declining in value since early February.
Last week, I did an analysis of the changes in the value of the U.S. dollar versus a number of world currencies I track plus the four major precious metals. For the period from the close on Feb. 9, 2015 through March 8, 2015, here is how the dollar performed compared to the following:
Over this time period, the U.S. Dollar Index rose from 96.06 to 97.17, an increase of 1.16%. Since this is a well-watched financial indicator, many people probably think that the US dollar, on net, rose against world currencies over the four weeks ended March 8.
Unfortunately, the U.S. Dollar Index only tracks the value of the U.S. dollar against just six world currencies with the following weightings in the Index:
Over the four weeks of my analysis, the U.S. dollar rose against four of those currencies and declined against two of them.
Should the US dollar continue to decline against so many world currencies, that trend could accelerate. Although foreign governments, central banks and sovereign investment funds have generally been reducing their holdings of U.S. currency and U.S. Treasury debt over the past year or so, the liquidations have been muted because of the strength of the dollar.
Should the U.S. dollar show more signs of weakness, expect the rate of foreign dumping of dollars to increase. That is what would accelerate the fall in the purchasing power of the dollar. One of the outcomes of such a development is a surge in the purchasing of bullion-priced physical gold and silver coins and ingots by Americans and foreigners alike.
Relative values can change faster than investors can react. Thursday last week, at a meeting of the European Central Bank, ECB President Mario Draghi announced that the Bank would significantly increase its quantitative easing program and push down three key interest rates. Immediately, the value of the euro fell against the U.S. dollar. However, Draghi later stated that the new actions would be the last of the kind that the ECB would ever implement. That resulted in an almost instantaneous turnaround in the euro to a level higher to the dollar than before the first statement.
Foreign currency exchange rates are not the only factor affecting the values of the U.S. dollar and gold and silver prices. But they bear watching in closer detail than just looking at the U.S. Dollar Index. One free website that provides a selection of historical graphs for more than 50 foreign currencies is http://www.x-rates.com/.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). His radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).