A Strong US Dollar makes me a happier US Expat in the Philippines

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Castaway
Posted
Posted

Just trying to figure this all out  :89:

So many things are up in the air right now and the US is involved with so many of those things that are being juggled up in air…

but the US Dollar is still going strong :thumbsup:


 

Why Is the Dollar So Strong Right Now?

The dollar is so strong for three reasons. Firstly, the Fed ended its expansive monetary policy as the economy improved. It stopped adding to the money supply. This constrained the supply of the dollar and increased its value.

The Fed also raised interest rates in December 2015. This strengthened the value of the dollar. It meant that U.S. Treasury notes would attract higher interest rates in the short-term. That increased the demand for dollars. Savers earned a higher rate of return on dollar deposits than on euro deposits, which paid lower interest rates.

Second, the European Central Bank lowered the value of the euro by doing the opposite. Political instability in the European Union also weakened the euro. Here's the Euro Dollar Conversion and Its History.

The dollar automatically strengthens when the euro weakens. That’s because the euro makes up 57.6 percent of the value of the USDX.

Therefore, whatever makes the euro weaker will make the dollar stronger and vice-versa. Each of the other currencies in the USDX has less influence on the dollar’s value.

Finally, forex traders intensified the strength of the dollar. They used leverage to further weaken the euro and strengthen the dollar.

This is the timeline of what happened from 2014 through 2016.

2014: In January, the Fed began tapering its quantitative easing program. The dollar remained in its 2013 trading range of around 80 for the first six months of 2013.. Similarly, the euro traded at around $1.3767. In February, the pro-western forces in Ukraine overthrew its government, sowing seeds of the Ukraine crisis. In March, Russia annexed the Crimean peninsula in Ukraine. In April, it sent forces to support pro-Russian separatists in eastern Ukraine. Also in March, the Fed announced it would look at raising the fed funds rate sometime in mid-2015. 

On September 4, the ECB announced it would begin its version of QE. In November, the ECB added it would maintain low interest rates. 

In December, the euro fell to $1.21, as investors feared the Greek debt crisis would force Greece out of the eurozone. As a result, the dollar strengthened to 90.03 by the end of the year.

2015: In January, the ECB announced it would begin QE in March. On March 12, it started buying bonds. The euro fell to $1.0524 (a 12-year low) on March 13. As the euro fell, the dollar rose. The USDX hit a 52-week high of 100.390 on March 13, 2015. The dollar rose 25 percent from its July 11, 2014, low of 80.187. It closed the year at 98.01.

Throughout 2015, analysts predicted the euro would fall to parity ($1.00). As a result, hedge funds and other forex traders began shorting the euro. These included Bridgewater Associates, Tudor Investment, Brevan Howard, Moore Capital Management, Caxton Associates and the Gavea Fund.  Traders who shorted the euro sold them on the spot market.

This meant they promised to buy them in the future to replace the currency they borrowed from their forex brokers. They hoped the value of the euro would fall during that time. If so, they pocketed the difference as their profit.

Another factor driving the strength of the dollar in 2015 was a slowdown in China's economy. Potential credit problems scared investors into the safe haven of the dollar.

In December, the Federal Open Market Committee raised the fed funds rate to 0.25.

2016: In January and February, the Dow fell to 15,660.18. It reacted to higher Fed interest rates. Investors didn’t like falling oil prices, the devaluation of the yuan and the turmoil in China's stock market.

Dollar Strength Index

The U.S. dollar index is the common measure for the strength of the dollar. This is a composite that measures the value of the dollar against the six the most widely-traded currencies. These currencies all use a flexible exchange rate. The amount of trade they have with the United States determines the exchange rate and weight of each currency. This captures the risk that U.S. companies have to those currencies. 

Currency

 Symbol

 Country

 Weight

Euro

 EUR

 Eurozone

 57.6%

Yen

 JPY

 Japan

 13.6%

Pound

 GBP

 Great Britain

 11.9%

Dollar

 CAD

 Canada

   9.1%

Krona

 SEK

 Denmark

   4.2%

Franc

 CHG

 Switzerland

   3.6%

U.S. Dollar Forecast

Long-term, the large U.S. debt-to-GDP ratio will reduce the dollar rate. Before the financial crisis, that's exactly what happened. As the U.S. debt grew, the dollar's value fell.

During the crisis, investors put their money into ultra-safe U.S. Treasurys. That increased the value of the dollar. It also lowered long-term interest rates. This combined with expansionary monetary and fiscal policy to strengthen the U.S. economy. That attracted more investors into Treasurys. 

https://www.thebalance.com/dollar-strength-why-is-it-so-strong-right-now-3305726

 

 

 

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scott h
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Posted
24 minutes ago, Castaway said:

Just trying to figure this all out  :89:

I don't really give a good smelly oot toot  why it keeps going up, I am retired :56da64b51da2f_36_1_681:and am content to let the world roll by. All this really means is that as it stands right now my dollar is worth 10 more pesos than when we planned our budget based on a 40 peso to the dollar. Let the good times roll:thumbsup:

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OnMyWay
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19 minutes ago, Castaway said:

but the US Dollar is still going strong

Not really.  The dollar has been weakening against most of the majors for the past year.  That article was written in July and I not sure what the goal of the article is.  It certainly is higher if you look at the 10 year euro chart, but currently trending down.

Screenshot (57).png

The peso has not correlated with the majors.  I think it is more influenced by PH economy and politics, and the fact that I moved here in late 2012.  My immense wealth and power turned it around.  You guys should thank me.  :hystery:

10 year dollar / peso:

Screenshot (59).png

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Castaway
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Posted (edited)
22 minutes ago, OnMyWay said:

My immense wealth and power turned it around.  You guys should thank me.  :hystery:

 

Thank You! :smile:

Edited by Castaway
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Castaway
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The higher value of the dollar really helps me stay awash in beer since the prices have gone up (as mentioned in another topic).

giphy.gif

 

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mogo51
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We Aussie convicts are in the same slip stream, albeit it not the super fast US slipstream.  When I came here in Phils 18 months ago and met up with the guys in Dumaguette, we were getting 32 pesos to %AU, now 40 pesos, yes there is a God.

 

 

 

 

 

 

 

 

 

 

We Aussie convicts are having the same sort of honeymoon, but not quite as exotic, we were getting 32 pesos to $AU 18 months ago, now 40 pesos.

Yes there is a God.

 

 

 

 

 

 

 

 

 

 

 

 

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Gary D
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I think a lot of it is that the peso has weaked since DU30 came to power as the peso has consistently weaked against a weakening £ since the announcement of Brexit.

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OnMyWay
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52 minutes ago, Gary D said:

I think a lot of it is that the peso has weaked since DU30 came to power as the peso has consistently weaked against a weakening £ since the announcement of Brexit.

DU30 has only been in office a bit more than a year and the peso has fallen for 5 years.

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OnMyWay
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12 hours ago, scott h said:

All this really means is that as it stands right now my dollar is worth 10 more pesos than when we planned our budget based on a 40 peso to the dollar. Let the good times roll:thumbsup:

Scott, if I recall correctly, you moved around the same time I did.  I arrived Oct. 21, 2012 and the rate was 41.42.  It slid a bit more down to 40.50 in Jan.'13, (the middle bottom in the 10 year chart below) and has been on the rise ever since.  Currently at 51.20, that is a 23.6% rise since my arrival.

This has been an amazing benefit to my family and I.  I retired at 56 with only savings to live on until 62, and I was very nervous about that.  The rate moving up has provided us with a big, extra soft cushion, and age 62 is looking sweet now.  After my SS starts and I have income, I can deal with the rate going down, but I hope it remains favorable.

Screenshot (59).png

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