Over the past week, we have seen the US Dollar Index reach towards the 93 level, only to turn around. As yields in the 10 year note have fallen again, this leads to a weakening greenback. However, if we continue to see yields drop in a growth scare, then it stands to reason that we may perhaps see the dollar find a bid this week. It should also be noted that the world is currently experiencing a bit of a dollar shortage, and therefore it is likely that the downside is limited – for now.
There is a lot of talk about inflation, but at the end of the day inflation will be very concentrated. In fact, some of the biggest contributors to inflation have already abated. We have seen lumber, used cars, and even housing in some areas of America start to cool off. In other words, this is likely to be a ‘rolling inflationary wave’, somewhat like stock markets see when massive selling starts. Its almost as if we are playing a game of ‘whack-a-mole.’
Unfortunately, I don’t see this nonsense ending in the near term. The market is likely to see a little bit of a pullback in the USD, but it appears that it will probably be somewhat limited. This makes sense from a cyclical standpoint as well, as the month of August tends to be very slow.