A lot is happening right now in the world, and every event, especially political ones, has an impact on the global economy and, specifically, on the value of the US dollar.
We must be up-to-date with these events and understand fully what these changes can bring us and what we should do in each hypothetical scenario. Our investment strategy and plans for the future will depend on our understanding and predictions of the general market and the dollar’s position.
In this article, we will cover everything you need to know about the US dollar’s value and what you should do to keep your finances safe and secure.
Let’s dive in!
Factors that Affect the Value of the U.S. Dollar
The US dollar is one of the most widely recognized and accepted currencies in the world, and its value is a subject of great interest and speculation. As we move further into 2023, many are wondering what the future holds for the dollar and whether it will continue to hold its value.
While it’s impossible to predict the exact trajectory of the currency, there are a few key factors that can provide some insight into what we might expect.
Inflation
One of the most significant factors affecting the value of the US dollar in 2023 is likely to be inflation. As the Federal Reserve continues to pursue an accommodative monetary policy, there is a risk that inflation could rise faster than anticipated. If this were to happen, it could erode the value of the dollar as investors and foreign countries would lose confidence in its purchasing power. However, the Federal Reserve has also indicated that it plans to take steps to combat inflation, which could help stabilize the value of the dollar.
Politics
Another factor to consider is the ongoing trade tensions between the US and China. While the Biden administration has signaled a desire to repair relations with China, there are still many unresolved issues that could impact the value of the dollar. For example, tariffs on Chinese goods could lead to higher prices for US consumers, which would in turn lead to inflation and a potential decline in the value of the dollar. On the other hand, a resolution to the trade tensions could help to strengthen the dollar by boosting investor confidence in the US economy.
Post-pandemic
Finally, it’s worth considering the impact of the COVID-19 pandemic on the value of the US dollar. While the pandemic is no longer the immediate threat that it was in 2020, there are still lingering effects that could impact the dollar’s value. For example, if the pandemic were to lead to a significant economic downturn, investors could become more risk-averse and seek out safe-haven assets such as the dollar. However, if the global economy recovers more quickly than expected, investors may be more willing to take on riskier investments, which could weaken the dollar’s value.
All of these factors – inflation, trade tensions, and the pandemic – are likely to play a role in determining the value of the U.S. dollar in 2023. While it’s impossible to predict the future with certainty, keeping an eye on these trends and staying informed about global economic developments can help individuals and businesses make informed decisions about their finances. As always, diversification and a long-term perspective are keys to weathering any potential storms in the economic landscape.
The US Dollar in Q1: An Overview
The first quarter of this year is behind us, and now is the ideal time to see how the dollar performed and what the inputs are.
Overall, in Q1, global equities rose as concerns about a recession in developed markets subsided. Even though we had a collapse of Silicon Valley Bank, we also had gains caused by significant volatility in bank shares.
On top of that, stock growth outperformed value, and government bond yields fell, which meant prices rose.
United States Market
Investor optimism drove US stocks higher over the quarter despite the brief market turbulence that followed the collapse of Silicon Valley Bank (SVB) in March. Rates were increased twice by the Federal Reserve (Fed), and data showed that inflation was slowing, raising hopes that the rate increase cycle would soon end.
Stocks fell significantly in March as a result of the collapse of SVB, which was swiftly followed by additional financial sector disruption in Europe. However, they soon recovered to close the month and the quarter higher. The Fed increased the policy rate by 25 basis points in February and March as a sign of its faith in the strength of the US banking system. As a result, borrowing costs are now at their highest level since 2007. However, the core personal consumption expenditure (PCE) index showed a smaller increase in March than anticipated, raising the possibility that future rate increases will be restrained.
Unexpectedly, the financial industry largely ignored the SVB-related events because investors believed the systemic risk to be low. The stocks that underperformed the most during the quarter were those in the energy and healthcare industries. Technology stocks exhibited some of the most impressive gains.
U.S. Dollar Loss Value For Four Weeks Straight
The last week of March saw the U.S. dollar (USD) under bearish pressure as investors shifted their focus to riskier assets as concerns over a potential global financial crisis subsided. The U.S. dollar index (DXY), which had ended the previous two weeks in negative territory, kept moving lower and nearly touched 102.00 before putting on a modest comeback early on Friday. The USD has been burdened further by renewed hopes that the US Federal Reserve (Fed) will pause its tightening cycle at the next meeting.
The USD performed a technical correction against its main competitors on Friday, but after weaker-than-expected inflation data, it lost some of its strength. According to data from the US Bureau of Economic Analysis, the Fed’s preferred inflation indicator, the Core Personal Consumption Expenditures (PCE) Price Index, fell from 4.7% in January to 4.6% in February. Against the market’s forecast of 0.4% monthly growth, core PCE inflation increased by 0.3%. However, the DXY is still on track to finish the third consecutive week in the red and has dropped more than 2% in March.
U.S. Dollar Vs. Other Currencies
In 2022, we saw the US dollar’s dominance. With victories over competitors like gold, the Swiss franc, the Japanese yen, and Bitcoin, the world’s reserve currency had once again demonstrated why it was considered the best safe haven.
However, the U.S. Dollar Index indicates that as of February 8, 2023, the dollar has declined significantly, but it is still about 8% higher than it was at that time last year. Given that the U.S. dollar is the world’s reserve currency and has a significant impact on investment, debt servicing, and inflation, changes in the exchange rate of the U.S. dollar have a significant impact on the global economy, businesses, and consumers.
The U.S. Dollar Index compares the strength of the dollar to the following widely traded currencies: the euro (EUR), Japanese yen (JPY), British pound (GBP), Canadian dollar (CAD), Swedish krona (SEK), and Swiss franc (CHF).
Investors can keep track of the dollar’s strength in relation to the currency markets. The dollar’s exchange rate with other currencies as of March 14 is shown below:
- EUR/USD: One euro buys $1.07 now, compared to $1.09 in 2022
- USD/JPY: One dollar buys 134.29 yen, versus 117.50 in 2022
- USD/CHF: One dollar buys 0.91 Swiss francs, versus 0.93 in 2022
- GBP/USD: One British pound buys $1.21 now; bought $1.30 in 2022
- USD/CAD: One dollar buys C$1.37 now, compared to C$1.27 in 2022
Quincy Krosby, the chief global strategist at LPL Financial, predicts that the relationship between the dollar’s strength and American interest rates and inflation will remain strong going forward.
While the Fed continues to be firmly dependent on data, Krosby notes that the direction of the dollar is also still determined by inflation and the Fed’s monetary policy, and currency fluctuations happen daily.
What Are the Predictions?
The US Dollar Index has experienced four losing weeks in the last five, and future months may see further declines for the dollar.
The USD lost 2.57% of its value against a basket of other major currencies in March, undoing most of its gains from February. Since October, the US Dollar Index has fallen 8.8%.
According to a senior market analyst at FxPro, Alex Kuptsikevich, “It cannot be ruled out that the quarterly portfolio shakeout will create traction in the dollar, but it is still more likely that the US currency will fall further in the coming quarters.”
He believed the sharp change in the dollar’s direction from rising to falling in September signaled a turning point. Until then, the greenback increased steadily as the Fed tightened monetary policy, but it started to weaken on expectations of loosening financial conditions.
The federal funds rate was increased by 25 basis points earlier in March, marking the ninth consecutive increase.
The Fed’s preferred inflation gauge, core personal consumption expenditures, came in lower than anticipated in Friday’s data, continuing the trend of steadily declining inflation.
Additionally, traders have increased their bets that the Fed will cut rates later this year in light of the unanticipated financial turmoil that began in March with the collapse of Silicon Valley Bank.
According to the analyst, the Fed is at the forefront of the monetary cycle, which initially creates 12 to 18 months of dollar growth on rate hikes but then sparks a move in the opposite direction. “In the past six months, the dollar has reversed fairly and clearly.”
According to Kuptsikevich, the dollar’s technical indicators also point to further downside from the current level of approximately 102.29. The immediate downside target may be the currency’s 2023 low of 100.7.
A consolidation below that point, according to Kuptsikevich, “would send the dollar staring into the abyss, with little technical support in the vicinity of the 90.00 level.”
How To Protect Your Finance?
No matter what is happening in the world and in the overall economy, our number one goal is to protect our finances and provide for our families. The proof that people want to read about it is in our previous blog, where we covered the topic of what to own when the dollar collapses, and it went viral.
Again, we want to note that we can’t predict what will happen in the future with complete certainty, and these articles are only our analysis and thoughts based on the information we have.
However, what is great about the system we use and teach others—Lifestyle Banking—is that it can be used and beneficial not only when the global economy is uncertain but anytime.
Are you familiar with the Lifestyle Banking system?
If not, grab a pen and paper and hear why we think it’s the ultimate asset to have to protect your finance.
Lifestyle Banking
Lifestyle Banking is a way of utilizing your whole life insurance policy. People used to think that the only way you could use a life insurance policy was for life insurance coverage, but that’s not quite right.
Still, it’s not strange that people don’t know about using their whole life policy in everyday life because no one teaches us the other ways. And since no one is talking about it, we decided it must be us.
How did everything start? We were in debt for $120,000, trying to meet ends from month to month. It was unbearable for us, and we wanted to make a change.
We’ve started learning and talking to other people, professionals, and financial advisors to find the best solution for us. And we found it!
And that’s not all. We specialize in utilizing a whole life policy so we can help others get out of debt and become true owners of their lifestyles.
And here we are now, teaching you to do the same.
So let’s explain how a whole-life policy can help you erase your debt, provide for your family, and protect your finances in economic crises.
Whole life insurance is a financial product that provides lifelong coverage and a death benefit payout to the designated beneficiary (or beneficiaries) upon the policyholder’s death. This policy also has a savings component called cash value, which accumulates with every payment.
When the cash value reaches a certain amount of money (which will depend on the structure and life insurance company you bought it from), you, as a policyholder, are allowed to use that money to fund anything you need to.
Lifestyle Banking is a strategy of using a whole life policy as a savings vehicle and borrowing against the cash value. When you borrow money against your policy and repay that loan with interest, the interest payments go back into the policy and increase the cash value.
As a result, you create a cycle where you can borrow against your policy repeatedly, effectively creating your own source of financing. With this system, you have access to capital without relying on traditional lenders, and whats most important, instead of filling the bank’s pocket by paying high interest rates and other fees, you’re getting wealthy.
When you become your own source of financing, you can truly live your own lifestyle, and that’s why we call this process Lifestyle Banking.
And having your own banking system can help you protect your finances and live undisturbed even if the economic outlook isn’t positive or the dollar’s strength is unclear.
So, Is the U.S. Dollar Losing Value and What Should You Do?
It seems like there are too many unpredictable scenarios and possible outcomes, but currently, the dollar’s strength isn’t at its highest level. Whether the dollar loses its status as the world’s reserve currency and collapses or returns from the ashes like the phoenix and becomes a stronger dollar than ever before, we individually must make plans for the future and ensure we’re safe and covered.
And the best way to secure your finances, erase your debt, and generate wealth is by creating your personal source of financing, Lifestyle Banking.
If you don’t want to wait anymore on any further speculations about what may or may not happen in the future and you want to start acting today—the best place to start is the Wealth Nation masterclass.