USD Appreciation

Posted By Darren Winters on Feb 12, 2024


USD Appreciation

USD appreciation has been the theme since the last financial crisis in 2008.

The EURO, the single bloc currency of a trading bloc valued at 16 trillion dollars (2022) and the second most globally traded currency, lost nearly 50% of its value against the USD since January 2008.

USD appreciation against the pound sterling GBP is even more marked

In January 2008, the GBP-USD exchange rate was 2.005, in January 2024, it is 1.26, and even that looks overvalued, bearing in mind a coming Labour government virtually guarantees a large public deficit, which could further dilute GBP. 

UK’s current unelected (by the UK electorate) PM, Rishi Sunak, is the country’s fifth prime minister in just six years, since 2022.

In 2022, GBP almost hit parity with, a far cry just a little more than a decade ago when your one pound sterling would buy you two dollars.

USD appreciation against the Japanese Yen of 30% in 2022 underscores the strength of the king dollar

Nearly every fiat currency, whether a G7 currency or a developing nation’s currency lost value against the king dollar over the last decade.   

USD appreciation trend likely to make a dollar crash against other fiat currencies a fantasy

USD Appreciation

“So much trouble in the world,” Bob Marley’s lyrics and the USD goes from strength to strength. 

The Russian invasion of the Ukraine war, the worst European war since WW2, displaced millions from their homes and killed probably half a million soldiers and civilians to date is having a significant impact on the continent’s economy and security architecture. Europe’s post-WW2 golden period of peace and prosperity could be over as the war continues to show no signs of abating.

The Ukraine war started in 2014 and reached a climax with the Russian invasion of Ukraine in February 2022. Since then, the situation has rapidly deteriorated. 

In April 2022, the sinking of the warship Moskva, then five months later, the attack on critical infrastructure Nord Stream pipeline sabotage.

In May 2023, the Kremlin was hit by two explosive drones, and the ongoing endless drone attacks inside Russia are so numerous the media doesn’t bother mentioning them anymore as the sheeple public has become desensitized to the war. 

Conscription now being discussed could be a sign of a soon publicly declared NATO war with Russia. 

US-Russian relations are at their lowest point ever, with some analysts believing the Defcon level is now somewhere between 2 and 3. 

Defcon 2 is”Fast Past or Red Alert Level,” where the likelihood of mistakes from both sides is the greatest.

A high-intensity conventional war in Europe with Russia is unlikely to last more than six months. 

The limitation of a long-drawn war is human resources. 

If Putin’s Russia runs out of human resources to sustain a conventional war and its leaders believe its sovereign territory is under attack by NATO’s invading army and feels it is backed into a corner, the likelihood of nuclear weapons being used on a NATO country could be real.

WW3 will probably be fought conventionally for 6 to 12 months, then there is a real possibility that it escalates to nuclear war with a first cease-and-desist strike. Each side has early warning systems, and if those are tampered with in a full-blown war, that could stoke fears of a pending decapitation strike, which could trigger an immediate preemptive response, a first cease and desist strike. 

If a nuclear war escalates from here, kiss your assets goodbye. The world as we know it ends. 

The US is most likely to survive and thrive in a conventional and limited nuclear war in Europe with USD appreciation.  

Similarly, post WW2 German and British industry capacity was reduced due to war damage and labour shortage, with US industry rising to the challenge to fill the shortfall, as the post WW2 economy was rebuilt.   

Fast forward and the war in Europe is already adversely impacting Germany’s economy. The just released official GDP results show that the German economy shrank by 0.3% quarter-on-quarter in the fourth quarter of 2023. The year 2023 was the first full year since 2020 in which the German economy contracted (by -0.3% year-on-year). 

The GDP numbers from previous quarters were revised. 

Germany’s industry can only thrive if it has cheap energy. Cut that source off, and there goes Europe’s largest economy, which has been bankrolling the peripheral economies in the south. So goes Germany, and so goes Europe and the euro. 

Spain is showing some resilience in the Eurozone, due to a boom in international property sales because, whilst in NATO, it could be viewed as a haven should a wider war break out in central northern Europe. Spain was neutral in WW2, and today, with almost 10% of its GDP based on tourism, it tends to advocate a foreign policy based on diplomacy and mediation rather than wars.  

Hawkish Russia and USD appreciation

The Russian invasion of Ukraine has changed the security architecture of Europe and made neighbouring countries nervous.

If Europe’s largest army is on a bear crawl, then an alliance of countries’ armies is the only credible solution to resist potential military aggression.

Suddenly, NATO has a function, becoming relevant and necessary.

Paying for security protection money becomes a non-discretionary expense.

The military-industrial complex is on the receiving end, with most bills paid in USD.   

Improving US balance of trade and USD appreciation

So it is no surprise US exports improved in 2023; led by Energy Products, Capital Goods, Pharmaceuticals, and Automotive.

As we wrote before, Europe’s woes are a classic beggar thy neighbour policy, which maintains US hegemony, keeping the dollar on the throne.

Perhaps that is why a peace plan to end the Ukraine war was deliberately crushed. 

The trade deficit became less horrible by 19% in 2023, with exports of goods and services rising to $3.05 trillion and imports of goods and services falling sharply to $3.83 trillion. 

The most US export products included crude oil, petroleum products, such as natural gas, and petrochemicals tallied $466 billion in exports in 2023.  

The US has become the largest global producer of crude oil, petroleum products, and natural gas. 

US Capital goods, which include civilian aircraft and engine exports, grew in 2023 at 601.2 billion dollars, up 5% from last year.

Automotive vehicles, parts, and engine exports increased by 12.1% to 179.0 billion in 2023.

More global liquidity and USD appreciation 

Global demand for US treasury bonds could be buoyant going forward, particularly in a global recession, troubled world.  

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