The dollar’s stunning decline last month, the most in a decade, suddenly looks a lot less consequential once you take into consideration the inflation-adjusted value of the greenback.
That’s the view of veteran strategist Marshall Gittler, who suggested investors should adjust for price levels, use a wider basket of trading peers than the closely-followed U.S. Dollar Index and remember how much the currency had previously risen, in order to put its move in proper context.
While the gauge of the dollar fell 4.2% in July, the U.S. Fed Trade-Weighted Real Broad Dollar Index only weakened by 0.9%, according to data compiled by Bloomberg.
“Back in April, the recent peak, the dollar’s real value was the highest it’s been in nearly 18 years,” Gittler, head of investment research at BDSwiss Group, said in a note Friday, published by Nasdaq. “That was the extraordinary move, not the recent decline.”
The Federal Reserve index’s 3.6% drop since April is “far from being a catastrophe that needs explaining” and is in line with its historical long-term trading pattern, he said.
By comparison, the Dollar Index is down 7.1% from its April peak. It was little-changed Tuesday during Asian hours, after a two-day rally.
Gittler joins other strategists, including those at JPMorgan Chase & Co., pushing back on the intensifying debate over the future of the dollar, including threats of a structural decline voiced by analysts at Goldman Sachs Group Inc.
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