As I was watching the news last night, I heard more about the U.S. dollar decline. They made so many assumptions as to why the Euro has been gaining on the dollar.
For starters there is the housing bubble, that’s us again, always making the headlines and then there’s the the Fed’s decision to cut interest rates, and the rumor of mass printing???
So, which of those factors are directly affecting the U.S. dollar? Let’s take a quick look.
The Housing Bubble
The housing bubble in the US is well known, but the bubble in Canada, China, and Spain is just as big as the bubble in the U.S. In particular, the bubble in Vancouver is as massive as the bubble in Florida or California ever was. Vancouver housing prices are destined to crash. Don't ask me when, but only fools are buying at these prices. The housing bubble in Australia was the first to start deflating.
The point here is that housing bubbles are practically everywhere you look. So the housing bubble is not a cause of the dollar's weakness.
Cut on Interest Rates
A couple years back, the dollar was rallying when the Fed was hiking, but all of that was given back and then some when the Fed paused. The dollar further weakened when the Fed cut rates. The direction of interest rate policy is important. The expectation is the US is going to keep cutting but while the EU will keep climbing. This expectation is causing further weakness in the dollar.
The myth persists that the US is massively printing. This is simply a false. There are extremely strict rules and regulations.
And while I think we can all agree, the U.S. Dollar has seen some better days, especially true in relation to the Euro. Remember when everyone hated the Euro a few years back, but they all love it now that the dollar is at $1.40+- vs. the Euro.