4 More Years of Dollar Weakness?

4 More Years of Dollar Weakness?

December 16, 2020

Back in July, we wrote in our July 23 LPL Research blog that dollar weakness may continue, highlighting a short-term bearish technical case for the US dollar. Since then, the Bloomberg US Dollar Index and the US Dollar Index (DXY) are down 5.3% and 4.1%, respectively.

Today, we take a more long-term look at the dollar and explore the historical reasons why we believe this weakness could be a theme in 2021 and beyond.

As shown in the LPL Chart of the Day, in recent months the US Dollar Index has broken a critical uptrend line that has been in place for nearly a decade. Down nearly 12% since the stock market bottomed in March, the momentum is clearly lower.

View enlarged chart.

However and perhaps more compelling is that the downward movement in the dollar is entirely consistent with a roughly eight-year boom-and-bust cycle that has played out over the past 50 years. The bottom panel shows the rolling eight-year rate of change for the dollar, and the regularity is truly remarkable:

  • September 1969–October 1978 (9 years and 1 month): -33%
  • October 1978–February 1985 (6 years and 4 months): +93%
  • February 1985–August 1982 (7 years and 6 months): -51%
  • August 1982–January 2002 (9 years and 2 months): +52%
  • January 2002–March 2008 (6 years and 2 months): -40%
  • March 2008–December 2016 (8 years and 9 months): +42%

According to LPL Financial Chief Market Strategist Ryan Detrick, “Despite briefly surging in March, the US dollar remains in a secular downtrend that arguably started nearly four years ago. If history is any guide, we could only be at the halfway point of a significant move lower in the dollar.”

The dollar is down nearly 4% since the beginning of November, and while the index is oversold in the very near-term, we remain bearish on the dollar’s trajectory in 2021. We believe this could have positive implications for international equities and commodities next year.

For more of our 2021 market insights and forecasts, including our positive take on emerging markets, please read our new LPL Research Outlook 2021: Power Forward.



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