America should be celebrating the resurrection of King Dollar instead of fretting about how it could impact the global economy, according to blogger Scott Grannis, former chief economist at Western Asset Management.
Grannis noted it was only three years ago that the greenback slumped to an all-time low against most of the world's major currencies.
"Gains have been uneven — huge gains against the yen, but not much against the pound, for example — and on balance the gains have simply restored the dollar to something close to its average value since the early 1970s," he wrote on his
Calafia Beach Pundit blog.
"These gains may continue and could become problematic if they are excessive and rapid — strong and stable currencies are the healthiest — but for now it's appropriate to cheer the return of King Dollar."
By his calculations, the dollar is up 22 percent against the euro since last March alone, and the two currencies are actually approaching parity.
The Australian dollar is weaker than it was after the Great Recession but still demonstrates some resiliency again the U.S. currency, while the Canadian dollar is off 30 percent since 2011 and is also approaching parity with the U.S. dollar, according to Grannis.
He predicted the steady British pound will lose ground to the dollar over time on account of U.K inflation, and said that the dollar has gained an "impressive" 55 percent against the Japanese yen in the past three years.
Grannis estimates the dollar has risen about 30 percent against a basket of major currencies since 2011.
"This puts it about 5 percent or so above its average since 1973. That's an impressive comeback in three years, and it owes a lot to the fact that the U.S. economy — despite suffering its weakest recovery ever — is arguably the strongest of all developed countries."
David Kotok, chairman and chief investment officer at Cumberland Advisors, noted the Federal Reserve is expected to commence raising interest rates by the end of 2015, which presumably could put another prop under the dollar in the face of quantitative easing efforts in Europe and elsewhere.
"And the U.S. dollar is the world's reserve currency so the U.S. is not worried about inflows," he said. Cumberland expects the Fed's policy rate to rise to about 0.50 percent by the end of 2015.
Kotok cited BCA Research data that showed the dollar is up 23 percent in its current strengthening cycle, while in a similar currency cycle of the 1990s it rose 53 percent and in a 1970s-80s cycle it gained about 57 percent vis a vis other major currencies.
"The bottom line is that this seems to be a cycle of dollar strengthening that will be measured in years," he explained.
Kotok predicted a stronger U.S. dollar would not by itself derail the current bull market in stocks.
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