That’s the title of a Bloomberg article yesterday. Every few years, there’s talk about concerted action to weaken the dollar, as in 2015. There’s good reason to wish for a weaker dollar at various times — a strong dollar and high interest rates strain emerging market external balances. But would such action matter? Here’s a look at the dollar and some covariates.

Figure 1, top panel: Nominal trade weighted dollar (vs. advanced economies); middle panel, TIPS 10 year yield, %; bottom panel, VIX. Light orange shading denotes Trump administration. Source: Federal Reserve, Treasury, CBOE via FRED. 

Note that the current surge in dollar value is not tightly tied to the risk appetite, as measured by the VIX, but more so to the real interest rate, suggesting safe-haven factors are not the major driver of dollar strength. Figure 2 presents a detail of the graph.

Figure 2, Nominal trade

Keep reading this article on Econbrowser Blog - James Hamilton & Menzie Chinn.

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