The U.S. dollar has been at 14-year peaks on an abundance of upbeat global economic data and signs of quickening inflation, and a new Reuters polls shows most analysts expect the rally to continue through 2017. David Pollard reports on the winners and the losers of the greenback’s surge.
(Reuters) – San Luis Potosi, Mexico.
Say ‘Ford’ and for many it’s a dirty word.
The US carmaker has dropped plans to build cars here.
A 1.6 billion dollars investment in a new plant: cancelled.
RESIDENT, GUILLERMO ROSTRO,
“It’s bad. Trump’s intervening in globalization, he wants to take companies to the US and that’s going to affect Mexico.”
It perhaps heading there anyway, but Mexico’s peso hit an all-time low against the dollar on the news.
The dollar’s surge to a 14-year high leaving other currencies floundering in its wake.
Trump’s talk of protecting US interests has rattled free trade fans …
Talk of spending at home is a powerful draw for investors – already betting on higher US interest rates.
What of the risks?
CHIEF INVESTMENT OFFICER, CCLA INVESTMENT MANAGEMENT, JAMES BEVAN,
“In the US markets itself, I worry about the outlook for US credit, simply because a very large amount of credit has been advanced … Largely because dollar strength will make the export story more demanding, then a number of the entities that have over-borrowed will be stretched.”
If the record highs in US stocks point to winners, there are losers.
Along with the peso, the Chinese yuan: down four per cent in Q4 against the dollar – although China’s suspected may be responsible for a recent rebound.
Japan’s yen – down around 15 per cent.
Sterling – already burdened by Brexit – five per cent.
For exporting nations, there are the positives of a cheaper currency.
But the best of them may have already been had.
FIDELITY INTERNATIONAL, INVESTMENT DIRECTOR, TOM STEVENSON,
“It’s self-regulating. If the dollar rises far enough, then it will act as a headwind for US companies, particularly those which are exporting, which are earning their profits in overseas countries. So the US authorities will not want to see the dollar strengthen too much.”
A new Reuters poll gives a median one in two chance of the dollar rising to parity against the euro this year.
If there are lingering doubts, it’s about Trump the man that takes office on January 20th – and not the campaign myth.
An uncertain reality that might just show a red stop light to the advance of the greenback.