The U. S. Dollar In 2016 And Beyond

Dec. 28, 2015 11:10 AM ET2 Comments
John M. Mason profile picture
John M. Mason


  • The value of the US dollar rose throughout 2015 posting gains in the 10 percent to 12 percent range against currency indexes.
  • This "strong" dollar was achieved almost accidentally as the US economy grew relatively more strongly than most other countries in the world.
  • In 2016, the factors are in place for the US dollar to remain strong, but the monetary (and fiscal) authorities are going to have to recognize this to perform well.

Paul Volcker, former Chair of the Board of Governors of the Federal Reserve System, has written, "a nation's exchange rate is the single most important price in its economy…."

This quotation comes from the book he wrote with Toyoo Gyohten, who worked in the Japanese Ministry of Finance, titled "Changing Fortunes: The World's Money and the Threat to American Leadership" (New York: Times Books, 1992, p. 232.)

Since the end of 2014, the United States dollar has strengthened against almost every currency in the world.

At the end of 2014, the value of the Euro in terms of the dollar was around $1.22. On December 24, 2015, the Euro was around $1.09, just about a 12 percent rise in the value of the dollar. On March 13, 2015, the value Euro was under $1.05 and on December 7, the Euro was near $1.08.

The Federal Reserve has two trade-weighted indexes, the first one considers 20 major trading partners and the other considers other important trading partners.

Against the currencies of 20 major trading partners the US dollar rose in value by just over 11.0 percent. Against the currencies of other important trading partners, the US dollar rose just about 10.0 percent.

All in all, the dollar performed quite strongly in 2015. What was going on?

Basically, the reason for the performance of the US dollar was that the US economy was out-of-sync with the economies of most other countries in the world and this meant that the monetary policy followed by the United States was the reverse of what most other countries were doing.

Whereas, most of the rest of the world were experiencing problems with economic growth and consequently looked to their central banks for further monetary ease, the situation in America was one in which the Federal Reserve

This article was written by

John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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