It does not make much sense for the dollar to be used as widely as it is. Sure, the U.S. economy is the largest in the world, but the dollar is on one side of 88% of all currency trades, despite the US accounting for about a quarter of global gross domestic product. Countries, particularly China and Russia, are also shocked that the US is able to provide its dominant currency to government officials over the entire sanction.
But even if the dollar fell 8.5% from the height of March, according to the WSJ dollar index
BUXX
,
there is still no clear path or even idea on how to replace the role of the dollar in the global financial system. It was only a year ago that former Gov. of Bank of England Mark Carney suggested that Facebook’s Libra cryptocurrency could be a replacement, an idea that now sounds ridiculous, considering the project’s credibility, even as Carney’s criticism of dollar hegemony proved to be if there was a dollar shortage during the onset of the coronavirus pandemic.
Brad Setser, senior fellow at the Council on Foreign Relations, makes another point.
“A weaker dollar is leading to more intervention by countries seeking to protect their exports in the foreign exchange market, and thus more reserve accumulation,” he said in a blog post this week. “A weaker dollar therefore typically results in higher not lower demand for dollars from the world’s reservists.”
And how do these reserve managers collect dollars? By buying US Treasurys, which comes in handy because the US is issuing the debt at a faster rate, as the latest issues of the budget deficit released on Wednesday.
Setser says a number of countries were back in the market in June and July to devalue their currencies – particularly Thailand, Taiwan, Singapore and India.
“Many export-based economies with large external surpluses are ready to drop their currency against the dollar, but they remain reluctant to appreciate their currency against the dollar as the tide turns. And so most of the world’s accumulation of dollar reserves tends to come when the market does not push the dollar up, ‘he writes.
The buzz
Initial data on actual claims mark the economic calendar, with Federal Reserve Gov. Lael Brainard and Atlanta Fed President Raphael Bostic due to speak.
Network hardware and software maker Cisco Systems
CSCO
reported a decline in earnings and guidance for soft income for the current quarter, and announced its chief financial officer with retirement.
Conglomerate 3M
MMM
said sales trends improved in July, and manufacturer of luxury products
TPR
reported a narrower-than-expected loss.
Call
AAPL
is ready for a series of bundles that allow customers to subscribe to several of the company’s digital services at a lower monthly price, according to a Bloomberg News report.
The US has said that tariffs on European Union products will not continue to change, despite efforts by aircraft maker Airbus to comply with a World Trade Organization decision on state aid. Also on the trade front, a number of U.S. companies have lobbied the White House over the decision to ban the social media app WeChat, according to The Wall Street Journal.
The brands
Although the S&P 500
SPX
is within touching distance of a closed record high, US stock futures
ES00
YM00
NQ00
were weaker.
Golden futures
GC00
fell. Proceeds from the 10-year Treasury
TMUBMUSD10Y
eased to 0.66%.
The map
Bank of America took a survey of European credit investors about what worries them. Investment investors were most concerned about negative-yield debt and the growing Nasdaq
COMP
,
although high-yield investors are more concerned about the relentless rise in the Nasdaq than anything else. The current depressed valuations of European bank shares
SX7E
came in third for both sets of investors. The August survey, according to Bank of America, also shows that credit investors have gone ‘alone’, pushing overweights to record highs with a net overweight of 62%. Not only is some investors’ financial repression (central bank action) too hard to fight, supply is set to fall after companies issued debt earlier in the year.
Random reads
Apparently there has been a flood of posts on social media saying that sen. Kamala Harris, Democratic presidential nominee Joe Biden’s running mate, is ineligible to become president. She is.
Wind and solar energy accounted for a record percentage of electricity in the first half of 2020.
Prince Harry and Meghan, Duchess of Sussex, are now California homeowners.
The observatory shown in the James Bond film “Goldeneye” had to be temporarily closed.
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