The U.S. Dollar Index, which gauges the greenback against a basket of currencies, recently plunged to its lowest level in nearly three years when it slipped below 90.00. The index has cratered 17% since hitting a peak of 103.00 this past spring, bringing its year-to-date decline to around 7%. Has the buck’s slump hit bottom, or is the global reserve currency going to collapse even further heading into 2021?
Kick a Buck
The dollar has had a roller coaster ride in 2020. Investors were pouring into the conventional safe-haven asset at the height of the coronavirus-induced market meltdown in an attempt to protect their capital from the chaos. As trillions of dollars in liquidity were injected into the system and investors became more confident in the broader financial markets, the dollar’s monumental gains started to reduce.
Market euphoria on the New York Stock Exchange, a successful dollar-swap operation, and a Federal Reserve firing the printing presses on all cylinders – it is more than likely that the greenback will extend its losses next year.
This is bad news for consumers, especially when it comes to inflation. One of the reasons why price inflation has been relatively tame in recent years is that the dollar had appreciated in foreign exchange markets, making dollar-pegged commodities and foreign exports cheaper to buy. Now that the commodity boom is in full gear and global supply chains have been interrupted, it is going to be rough for households. In fact, a weak-dollar trend is concerning news for nearly every American.
Is it time to ditch the dollar and transition to gold, real estate, and bitcoin?
Franc and Dong – The Currency Manipulators
In its semi-annual report to Congress, the Treasury Department labeled Switzerland and Vietnam as currency manipulators. The Treasury confirmed that it would begin bilateral talks with the two nations to rectify the situation. Officials reached this conclusion because the two countries met the three criteria to be slapped with the designation:
- Have a bilateral trade surplus.
- Maintain a material account surplus of at least 2%.
- Participate in one-sided interventions that total 2% of GDP over a 12-month period.
The department noted that it wants to ensure countries do not possess “unfair advantages for foreign competition,” adding that discussions “will include urging the development of a plan with specific policy actions to address the underlying causes of currency undervaluation and external imbalances.” But the Swiss National Bank (SNB) responded that it would not modify its monetary policy approach:
“In light of the economic situation and the fact that the Swiss franc is still highly valued, the SNB remains willing to intervene more strongly in the foreign exchange market. The SNB’s interventions in the foreign exchange market do not serve the purpose of preventing balance of payments adjustments or gaining unfair competitive advantages for the Swiss economy.”
The central bank has repeatedly intervened in forex markets to limit the franc’s appreciation over the last couple of years, so it was widely anticipated that Washington would target Switzerland. Bern has been feeling the burn reining in the franc’s meteoric ascent, from subzero interest rates to the tens of billions of dollars in sight deposits.
The State Bank of Vietnam (SBV) disagreed with the U.S. Treasury’s findings, explaining that its management of the exchange rate has been meant to control inflation and stabilize the macro-economy rather than to attain unfair competitive advantages in international commerce. Hanoi added that its trade surplus with the U.S. results from various characteristics of the Vietnamese economy, which has ballooned over the last 18 months due to businesses fleeing China. Washington has rarely used this designation, applying it to just three nations in the last 40 years: China (three times), Japan, and Taiwan.
Shorting the Men in Tights?
The men in tights at Robinhood have agreed to pay $65 million to settle a dispute made by the Securities and Exchange Commission (SEC). The financial regulator alleged that the commission brokerage firm failed to inform clients that it sold their stock orders to high-frequency traders (HFTs) and other financial entities.
The primary aspect of SEC’s complaint is payment for order flow. This is a controversial mechanism utilized by nearly all retail brokerages that consists of selling customer orders to external market makers. The practice has delivered tremendous profits for Robinhood, accounting for half of its revenues. While it did not admit or deny the SEC’s accusations, Robinhood stated that it is now completely transparent in its communications with customers. Dan Gallagher, the company’s chief legal officer, said in a statement:
“The settlement relates to historical practices that do not reflect Robinhood today. We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs.”
But that is not all. Massachusetts’ securities regulators recently submitted a complaint that asserted Robinhood is violating its responsibility to put customers first by exposing app users to “unnecessary trading risks” by marketing a “gamification” of stock investing. Plus, the SEC and the Financial Industry Regulation Authority are probing Robinhood’s trading outage in March.
So, why the settlement? Reportedly, Robinhood is gearing up for an initial public offering (IPO) next year. Ostensibly, the business wants these legal problems in the rear-view mirror to take advantage of the top-dollar performance synonymous with the IPO market. Trading the Robinhood IPO on Robinhood – mind blown!
Read more from Andrew Moran.