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  • baptistedefontenay

The depreciation of the dollar over the past months

08/01/2023




Hey everyone!

Sorry for not posting for quite a long-time - I took some time off during the holidays and the end of term at Cambridge was intense.

To come back, I wanted to share a graph of what has been happening in the US over the past few months with a continued US dollar depreciation.

The causes of this significant depreciation could be a reflection of the markets’ reassessment of US monetary policy, being perceived as less tight relative to that in other major advanced economies.

Nevertheless, as the Fed has consistently maintained that it will continue to hike rates until the 2% inflation target is met, the continued depreciation can also only reflect worry investors' perception of the US market rather than a trend with a solid economic foundation.

This could also be a market correction after the continued appreciation of the dollar relative to other major economies in the past year (see the graph below).

Overall, I still find very complicated to understand the rationale behind markets movements in such a context. The fact that I cannot understand most of these movements is unsurprising (as a student), but this is also the case for the most brilliant economists. We are walking an unchartered territories, which is as exciting as terrifying.

Please send me a PM with your view on this.


If anyone has the time, it could be interesting to compare the relative change in nominal exchange rates to that of money supply across advanced economies recently (for example UK & US, if you can find any data), but as it has been the case for quite some time I think that such correlation would be low.


Update: I have looked at the most recent data (UK vs US relative spot curve & relative change in monetary base aggregate) and as it has been the case since the introduction of Quantitative Easing, the correlation is fairly low. Of course, we do not have access to the most recent data, which I am discussing in this article.




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