There's an old saying that goes "When the dollar sneezes, the world catches a cold." As the world's largest and primary reserve currency, and the de facto currency of global trade, the ups and the downs of the greenback are something that the whole world cares about.
While the USD today is stronger and more valuable than at almost any other point in the 21st century, recent years have shown us that there is no guarantee that a strong dollar lasts long, nor is it necessarily even desirable for the American economy. Let's take a look at the highs and lows of the dollar since the last economic crisis to see if we can glean an idea of where it might be headed in the 2020s.
2007-2012: The Rebound
In the period just before the onset of the global crash of '08 and the resulting financial crisis, the dollar was at the tail end of a period of historic weakness. Between 2002-2007, the dollar lost a staggering 40% of its value against the euro, and even more against the British pound sterling. The euro was worth $1.44 in 2007, compared to just $0.87 in 2002, in part due to a ballooning U.S. federal and trade deficit during the period.
However once the financial crisis hit, things changed dramatically. When the world is in recession, investors and private traders look for a safe port. It doesn't get much safer than the world's global reserve currency, which is why the dollar gained 30% of its value against the euro between 2009-2012.
2012-2016: Peaks and Troughs
Anyone who is interested in trading currency pairs (a practice known as forex trading), should be aware of the ways in which seemingly isolated political events can have a huge impact on the value of different currencies. Any detailed guide on what forex is will tell you that currency traders always keep a keen eye on global news reports. They predict any signs of instability or a worsening economic outlook. They will also usually spell bad news for certain currencies.
This practice is perhaps best demonstrated by looking at the performance of the dollar against other currencies from 2012-2016. The 2010 Greek debt crisis sent the dollar soaring, as investors fled the falling euro. However, the U.S. government shutdown in 2013 erased those gains. After that, the 2015 Paris attacks saw the dollar gain significant value as investors looked for calm. This period is most definitely characterized by peaks and troughs.
2016-Present: Geopolitics Takes a Toll... on Everyone Else
The period since 2016 has seen geopolitical crises shake almost every major currency on earth, often to the benefit of the dollar. The UK's decision to leave the European Union in 2016 saw the GBP lose more than 25% of its value against the greenback. U.S. disputes with Turkey saw the value of the Lira collapse against the dollar throughout 2018. Ongoing concerns over the U.S.-China trade war, the Wuhan coronavirus, and the mounting economic problems of the Eurozone have all helped to strengthen the dollar as investors continue to put faith in it as a source of global stability.
While the dollar is currently going from strength to strength, the rest of the decade is hard to call. Much may depend on the outcome of the 2020 Presidential elections, whilst a strong Eurozone rebound would definitely put a big dent in the American currency.
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