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Dollar’s Pain

April 2016

By Bruce Powers, CMT, Chief Market Analyst at, and President at WideVision

The US dollar tumbled after the Fed’s dovish stance, and is likely to remain under pressure in the near future

Downside pressure remains on dollar
The US dollar index continued to weaken last month, falling to a five-month low at $94.58, which was 5.9% off the $100.51 early-December peak. That low followed the US Fed’s announcement that they were lowering expectations for rate hikes this year by 50%. Although the US currency recovered some leading into the end of the month, it remains in a down trending channel within a larger one-year trading range. If the March low is breached to the downside we can anticipate a move down to the 93.80 area, if not a little higher. At that point the chance for a more significant recovery increases. This is assuming the dollar doesn’t fall decisively below that price level. Regardless, downside pressure in the dollar will likely remain for the immediate future, benefiting commodities, and equities.

Keep eye out for confirmation of weakness in high-end property
Global real estate has boomed in recent years with London and New York key markets for international investors, each reaching record high prices. Market prices move in cycles and there is growing concern that we have reached or are close to a top. When real estate prices turn it’s usually seen first in the high-end. As reported in Business Insider, the US Federal reserve noted last month that the high-end property market in New York City is looking “particularly sluggish.” For London, as reported in the Financial Times, major international property investors are delaying purchases of UK real estate until after the referendum in June on whether the UK remains in the EU. High prices, currency volatility, and the impact from low oil prices are attributed to the softening.

Pensions liabilities leading to disaster
Estimates for the amount of unfunded or underfunded government pension liabilities within twenty OECD countries total $78 trillion, according to a recent Citibank report titled, “The Coming Pensions Crisis, as reported by CNBC. This is government debt that is not included in public debt-to-GDP ratios, noted Business Insider. The amount of outstanding government debt of those countries triples when including unfunded liabilities, added The Wall Street Journal. For years governments have been postponing pension contributions to meet current liabilities, or siphoning off existing funds for “emergencies,” all the while putting workers promised retirement benefits at great risk.

What’s happened in the city of Chicago, Illinois, the third largest city in the US, is an early symptom of a global problem. Unfunded liabilities to Chicago’s employee retirement accounts is $20 billion, and there’s not enough money to cover it. This is putting pressure on city services, and has led to a significant rise in property taxes, thereby pushing some residents out of the city. Chicago saw the greatest population decrease of any major US city in 2015, reported the Chicago Tribune. On top of all that, the state of Illinois is $111 billion short on its pension liabilities.

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