The Dollar Kerfuffle

The big buzz in the market this week was the rumored demise of the U.S. dollar. The dollar dipped sharply in Tuesday’s trade on chatter that oil prices may be pegged to the euro rather than the greenback. According to my sources, this rumor wasn’t just a rumor. There was, in fact, a grain of truth to the theory that some in the international banking community would like to see the dollar take a backseat to another world currency.

I suspect that the lack of confidence in the dollar has a lot to do with the lack of confidence the world has in our current political leadership. In fact, it doesn’t surprise me at all that since the new presidential administration embarked on its stimulus spending path, the value of the U.S. dollar has taken a virtual nosedive.

The evidence is right here in the above chart of the US Dollar Index, a measure of the value of the greenback versus rival foreign currencies. As you can see, the dollar is well below both its long-term, 200-day moving average (red line) as well as the short-term, 50-day moving average (blue line).

But despite the greenback’s recent woes, I still think the future looks bright for the dollar. When we step back and look at the currency situation from a wider perspective, I think we see that despite the ugly headlines and rumors, the dollar still is the go-to currency when it comes to safety, liquidity and sheer volume.

The bottom line here is that despite the recent woes in the greenback, and despite all of its naysayers, when push comes to shove, the dollar still is the currency that you want to have in times of crisis. So, my advice is to hold off on writing the buck’s obituary just yet.