Entering 2017, the USD had been up four years running on a broad trade-weighted basis with 8.6% gains in 2014, 10.7% appreciation in 2015 and a more modest 3.0% move in 2016. That last year was a less dramatic move but from May 2nd lows to the 15+ year peak on January 7th, the buck was up almost 9.3% or 14.5% at an annual pace.
Unfortunately for greenback bulls, things have gone wildly off-script since. The dollar has reversed its entire May 2016-January 2017 rally in a move that’s frankly shocked the FX world. As shown below, for the broad trade weight dollar this was the worst year on record through last Friday (latest data available) and the route has gotten worse this week with the Bloomberg USD Index (a decent proxy for the USD broad trade-weighted index) down a whopping 1.5% this week, its worst since the 5 days ending May 19th. Given that US economic data has actually held up quite well and there have been no radical policy shifts from the FOMC, that’s a pretty staggering move.
On a narrow major currency basis, the USD is just as weak. As shown below, this was the worst YTD through September 1st since 1986 (the year following the Plaza Accord agreement to devalue the USD) and the second-worst ever after this week’s decline, besting the 10% devaluation of the dollar engineered in 1973. Again, the contrast between the surging dollar post-election and the strong USD environment that prevailed for years before that event has been incredible: the dollar just won’t stop falling after it wouldn’t stop rising for years.