Will The Dollar Recover From Its Slide?

The U.S. dollar index fell 9 out of the last 11 trading sessions, already down 4.8% this year and back to the level seen last October. The dollar has weakened against all its major trading partners from the Japanese yen to the Canadian dollar.

Before asking whether the dollar will recover, we should first investigate what’s been behind its slide.

Compared to many currencies in the world, the dollar is still a safe haven currency. So Capital Economics‘ John Higgins looked at dollar’s movements this year before and after February 11, when global stock markets hit the bottom.

Between January 20 (when the dollar last peaked) and February 11, interestingly, even when risk aversion gripped stock markets, the dollar depreciated the most against the currencies of Canada and Australia, suggesting that a rebound in commodity prices had to do with some of the dollar’s weaknesses.

To be sure, in that time period, the dollar also depreciated against the yen and Swiss franc, both die-hard safe-haven currencies.

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