Crisis or No Crisis, the Dollar Cuts Its Well Worn Path

By Sean Hyman

If history is our teacher, it tells us that the dollar does respond to any crisis for a few months or so typically after the economy hits another rough patch. However, afterwards, it reverts back to the trend at hand.

If it went into the crisis in a downtrend, then it goes back into it again. And if it went into the crisis in an uptrend, then it tends to revert back to that uptrend too. (If history is any indication, then it’s very possible the dollar will simply continue the downtrend it’s been in for the past six years: crisis or no crisis.)

However, I don’t think it will be that easy to call. I would say this most recent financial predicament is more akin to the S&L crisis in that it happened when the U.S. dollar was near its 30-year low point. Afterwards, the dollar went into a huge wide range for several years.

If you were to look at these on a daily, one-year, multi-year chart, you’d see a series of very sharp up and down trends through the years. And when you back out to a monthly, 15 year chart you’ll see there was a huge, wide range that the buck got caught up in.

This is what I believe may happen this time as well. However, on a year-over-year basis, it won’t feel like a wide range. It will feel like very strong, sharp uptrends. It’s only when you look back on this era over 10-15 years that you may see the dollar ranged for several years after – what shall we call it? Perhaps – “The Bailout Crisis of 2008.”

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