The US dollar has weakened by about 6% versus the Brazilian Real year-to-date. Against the Mexican peso, the US dollar is down 2%. Against the Euro, and UK pound it is unchanged. Finally, the US dollar index DXY, the value of the US dollar versus a range of currencies, is down 3%.
The US dollar is weak.
Intriguing is that Brazil, Mexico, and Europe are US tariff targets, and US tariff threats should create weakness.
This is not happening.
Is stability in the real, peso, and euro versus the US dollar expressing strength in these foreign countries and currencies? Is it that no one believes tariffs are going to come about? Or is it investor concern about the trend of the US dollar?
Evidence supports concern about the US dollar’ s future trend.
First, DOGE is reducing US government costs, which long-term could strengthen confidence in the USD. However, so far savings are small, and many actions are being legally contested.
As of now, DOGE is not building confidence in the US dollar.
Second, there is a campaign to raise the US debt ceiling, increasing the amount of money the US government can borrow, even to an unlimited amount. Given the amount of debt at present, and the huge interest costs associated with that debt, investors are concerned whether or not the US can afford more interest payments.
Adding debt onto an already large amount is not a confidence booster for the US dollar
Third, there is a talk about a thing called the Mara Lago Accord. It is complicated to explain but in short. It would be an agreement among multiple nations to weaken the US dollar. A weaker dollar would allow for more US exports. More exports would start to correct the trade imbalance, deficit, the US buying more value of goods than selling.
In short, the US dollar is too strong to remedy present trade imbalances. It needs a new accord.
Finally, there is a risk that the US government will shut down March 16 due to financing concerns.
So, budget cuts light of expectations, the US government pushing for more borrowing ability, rumors of a drastic policy to weaken the dollar, and the possibility of a US shutdown all are weak points for the US dollar.
Given the possible downward trend in the US dollar, it can make sense to start investing in high yielding non-US bonds.
Etherfuse Mexican and Brazilian short-term bonds yield more than the US
Mexico about 3.3% and Brazil about 9%.
Investing in foreign short-term debt is a good way to avoid the pain of possible US dollar weakness.
In the end, it is a case of “dollar beware”.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
