Dollar Weakness

What exactly is the US trying to do?


In the last 1 year, the Bloomberg dollar index is down by over 14%. What explains this weakness in the dollar? Is the US deliberately doing it and what does it mean for India?

The post Trump trade

It was largely about the post-Trump trade. After a massive dollar rally following the promise of tax cuts and a $1 trillion infrastructure outlay, the dollar has been giving up some of its rally. Obviously, US growth is still likely to lag world average growth by 120 basis points and the real revival in growth has come from unlikely quarters like the EU and Japan. As the chart above indicates, the US dollar has been among the worst performing currencies in the last one year with only the NZ Dollar performing worst that that!

Weakening deliberately

It is obviously part of a larger US strategy to give a big boost to US exports with a weaker dollar. After all, a sharp cut in corporate taxes will already give them a huge competitive edge. A weak dollar will just add that extra bit to the competitiveness of US exports. US will now create jobs in the US and export to other countries with the help of a weaker dollar.

Not great news for India

India’s export push is going to get just that bit harder with a weak dollar. A weak dollar will make a lot of commodities cheaper and India must resist the urge to splurge on imports. It will be an entirely new kind of challenge for India with a weak US dollar! ©

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