by Axel G. Merk, Merk Investments
Is the dollar’s seemingly relentless rise in recent years coming to an end? What are the implications not only for the greenback, but other currencies and markets around the world?
The chart below shows the U.S. dollar index over the past 40 years together with its longer term moving average, as well as 1 and 2 standard deviation bands. To some the chart may suggest that exchange rates are mean reverting; some will see a longer-term declining trend in the dollar; others will point to what may be considered an extreme valuation given that the dollar index has been around 2 standard deviations above its moving average. To us, the fact that the dollar has moved so far from its moving average, gives rise to the question whether the dollar rally may be over. Let’s consider some arguments for and against ‘peak dollar’: