The Fed Trade Weighted Dollar Index fell another 1% over the past month.
The decline was led by the dollar falling against advanced economies as the dollar was down less against emerging market economies
1)
The Fed's trade-weighted indexes are my preferred US dollar aggregates, far better than popular measures like the $DXY due to the concentration
The USD is down 7% across the board in the last six months.
2)
Surprisingly, the USD is still up on the year relative to EM economies
With exceptions, the USD moves counter to global industrial growth
An industrial boom generally puts downward pressure on safe-haven dollars in exchange for more risk while economies are accelerating
3)
When the USD falls in conjunction with rising industrial commodities and strong manufacturing data, the evidence points towards continued growth and inflationary pressure in the goods sector.
4)
Without the recent surge in goods inflation, the US economy would likely be very near deflation as the inflation rate in the services economy continues to decline.
5)
Over the long-run, the winning FX will be the country that can sustain the highest real interest rates over time.
The highest real interest rates will likely come from the country that can sustain the highest real economic growth rate.
6)
The USD is in a long-term bull market, up 20%-30% against both advanced economies & EM economies
I expect the USD to continue falling as long as the global industrial upturn remains intact
When global industrial growth declines, the USD will resume its multi-year bull rally
M1 money supply is rising at nearly 70% year over year
What is going on and does this mean inflation is coming?
Shorter Answer: No
Longer Answer: Not from the monetary channel
1)
Money supply started to accelerate at the end of March, almost 9 months ago
Inflation was the concern at the time.
"Not in the short-term" but over the long-run was the phrase
9 months later & inflation is lower than when the pandemic started because velocity collapsed
2)
There is a cyclical upturn ongoing in the manufacturing sector which is giving rise to "goods" inflation but that is wholly separate from the (lack of) inflation emerging from the monetary channel that many fear with posts of M1 or M2 money growth.
Congress is threading the needle in terms of timing with the latest COVID relief package.
Personal income, after a massive surge, is about to fall below the pre-pandemic trendline.
Some thoughts on November's Personal Income & Outlays report:
1)
The most important metric for real consumption is real disposable personal income.
Real DPI spiked during the pandemic due to enhanced UI and stimulus checks.
Since April, real DPI has been declining as the withdrawal of stimulus has outpaced the increase in wages.
2)
Real personal income excluding transfer payments also declined in November which means the income drop was not just from a lack of stimulus, there was pressure to core income.