U.S. Dollar to Drop on the Back of Higher Deficits
Mark my words: the U.S. dollar could be heading much lower before it goes any higher…
Just recently, newly appointed White House economic advisor Larry Kudlow said, “A great country needs a strong currency.” (Source: “Kudlow says he favors a strong dollar, has no reason to believe Trump isn’t for one either,” CNBC, March 14, 2018.)
He added, “I’m not saying the dollar has to go up 30 percent, I’m just saying let the rest of the world know that we are going to keep the world’s international reserve currency steady.”
As bold as this may sound, take these words with a grain of salt. Understand that for the U.S. dollar to go higher, you need the U.S. government to manage its expenses and the U.S. economy to do well. Without these two elements, the dollar can’t really go far.
Here’s the thing, the U.S. government continues to spend without any remorse. It wasn’t just the Barack Obama administration; the Trump administration is continuing the legacy.
To give you some perspective, in the first five months of fiscal-year 2018, which began in October 2017, the U.S. government already accumulated a budget deficit of $391.0 billion. (Source: “Monthly Treasury Statement,” U.S. Bureau of the Fiscal Service, last accessed March 15, 2018.)
In fiscal-year 2018, the U.S. government’s budget deficit could be much bigger than in the previous year. Not too long ago, the Trump administration cut the corporate tax rate, which could mean much lower revenue.
It can’t be stressed enough: budget deficits are bad for the U.S. dollar. As the result of continuous budget deficits, the U.S. government has accumulated a national debt of over $20.0 trillion.
A Slowing U.S. Economy Could Send the U.S. Dollar Tumbling
As for the U.S. economy, it’s currently a “feel-good” economy, more than anything else. Sure, the data on the surface looks great, but if you pay attention to the leading indicators, they say that the U.S. economy may be headed for a downturn.
Obviously, this could hurt the U.S. dollar badly.
Just look at what businesses are doing. It doesn’t look like they are too optimistic about the U.S. economy. You can read all about it here: “This 1 Number Says Recession Soon Likely for the U.S. Economy.”
Understand this also: the Federal Reserve is currently raising interest rates, which has a direct impact on economic growth. As interest rates go higher, the economic growth rate tends to slow down.
The Fed has made it very clear that it wants to raise interest rates further, so this could really drag down the already-dismal U.S. growth rate.
Outlook for U.S. Dollar: 2008 Lows Are Possible
Dear reader, you might hear all about how the U.S. dollar could be strong, but don’t get lured by the optimism.
All the stars are lining up perfectly for a lower U.S. dollar.
If you look at the U.S. dollar’s performance relative to other major currencies, it’s horrible. Now, with higher deficits and a slowing U.S. economy, the greenback could get much weaker.
Keeping all his in mind, I will not be shocked if we see the U.S. dollar index (currently standing at 89.00) dropping below 2008 levels—below 70.00—sooner rather than later.
Remember, a lower U.S. dollar could be great for gold prices.