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Is The US Dollar Having A Tiger Woods Moment?

The US dollar is the bedrock of global finance. As the global reserve currency, the greenback has reigned supreme for decades as the undisputed champion. Other contenders have come and gone, but King Dollar remains on the throne. If the US dollar were a golfer, it would be Tiger Woods. And that’s a little worrisome.

Tiger dominated the sport of golf like no competitor in decades. His 82 professional wins stands tied for first with the great Sam Snead, and his tally of 15 major championships is second only to Jack Nicklaus’ 18. There was a time when Tiger’s eclipsing of Nicklaus’ majors record was thought to be a foregone conclusion. It no longer is. Injuries and unforced errors finally caught up with Tiger. He’s still the reigning Masters champion, but he is now just considered a really, really good golfer, but not the golfer who spent a mindboggling 683 weeks ranked as the world’s number one. Not the golfer who won the 2000 US Open by 15 shots.

Oceans of ink have been spilled analyzing Tiger’s return to earth; his body began to break down with age, but clearly his fall from the pinnacle of golf coincided with unforced errors in his personal life. Oceans of liquidity in USD-denominated assets provide a powerful moat for the greenback. Yet suddenly, there’s been something of a sea change. The dollar is on pace to finish its worst month since April 2011. As the coronavirus continues to stifle economic growth here, rock-bottom interest rates seem likely to persist for longer, even as other countries recover.

Is the failure of the United States to contain the coronavirus outbreak the currency market equivalent to Tiger Woods backing over that fire hydrant on Thanksgiving night in 2009?

Mark Twain famously quipped that rumors of his death were greatly exaggerated, and that may well turn out to be the case here, but the US dollar’s fall has been swift and severe. The dollar has fallen almost 4 percent this month vs. the ICE U.S. Dollar Index. That puts the three-month decline at 5.9 percent, and more than 8.6 percent vs. the euro, as Europe seems to be putting the worst of the pandemic behind it. That’s a pretty big decline vs. a major trading partner.

Accordingly, the goldbugs and crypto enthusiasts have been chirping all month, strutting about. Hyperinflation, here we come, they say. We’ve debased the currency beyond repair, they scold, and it’s not as if they don’t have a point—as lawmakers argue over whether the next coronavirus relief package will be $1 trillion or $2 trillion, they’re already greasing the gears on the money printing machine. But the trouble with betting on the swift demise of the global reserve currency is that nobody has the Fed’s firepower; a meaningful move away from the dollar would take years. But—clearly the market is reacting to all of these events. I don’t think the world is abandoning the dollar en masse, like say Tiger’s sponsors in the months following the airing of all his problems, but it is worth applying the Munger inversion question: does an out-of-control dangerous virus that is shutting down the economy in several large states boost interest rates? Does it create demand for US dollars? Does a bajillion dollars in new federal debt have a positive long-term impact on economic growth? At what point do global investors notice that a sovereign issuer such as Germany for example has a much better balance sheet than the United States?

The golf world was wrong to bet against Tiger’s return, and it is fairly likely that as economic activity eventually improves in the US, the US dollar will strengthen again vs. other currencies. But it’s also true that Tiger was never quite the same after the Thanksgiving, 2009. I do hope for many reasons that the US will recover faster than Tiger did, and come out of this whole ordeal a better off, as Tiger did.

Any opinions are those of Burke Koonce and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Burke Koonce is a financial advisor at Raymond James & Associates, Inc., member New York Stock Exchange, member SIPC.