The US dollar has had a dramatic decline in recent months. But the dog days of summer are unlikely to last for the greenback. Many of the factors that appear to explain recent weakness for the currency — particularly against its G10 peers — may struggle to hold sway in the months ahead.
For the moment, foreign exchange markets appear to be simply “nowcasting”, or using explanations for dollar depreciation to predict why the currency will continue falling. Most analysts and investors have focused on cyclical factors, blaming scaled-back expectations for US growth, lower interest rates and the rapid expansion of the Federal Reserve’s balance sheet.
So it is worth asking how strong these forces are, and how likely they are to persist.
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