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Originally Posted by Marc D  True about the GDP, no surprise there with the government stimulus and all. Excuse my ignorance because i'm still a bit of a noob with markets and stuff and I'm learning as I go but CPI has been relatively under control so is fear of future inflation indeed why the dollar is tanking or is it some other factor(s)? |
I'm not sure what exactly is going on. I agree the dollar is dropping, but not due to classic consumer inflation. As to why, it's a very complex picture.
The easy part to understand is that we have very unbalanced trade. That means dollars are going out the door in return for foreign manufactured goods coming in (net). What happens to those dollars next determines the exchange rate.
Possibility 1: those dollars are sold on the currency markets to get whatever currency is used in the country where the manufacturer is. This decreases the price of the dollar relative to that currency and in the process drives us towards balanced trade by raising the price of foreign imports and dropping the price of US goods in the rest of the world.
Possibility 2: The dollars are used as money outside the US (for example, to buy oil) by either countries (who also may keep reserves) or individuals. When this happens, the dollar becomes stronger.
Possibility 3: The dollars come back to the US in the form of foreign investment in bonds or stocks or real estate. In the bonds case, dollar devaluation is delayed until bond maturation but not prevented. In the stock and real estate cases, we've effectively exchanged equity in US corporations or physical land/buildings for foreign manufactured goods. That may be a bad thing, but the net effect on the dollar's valuation is zero.
So sort of by definition, we're seeing less 2) and more 1). But as to WHY, I don't know. We may also be seeing less "delay" effect from bond purchases because US bonds have unattractive yields right now and there have been a lot of defaults (with less than level handed government intervention) recently.