2012 – Year of the Dollar?

Dollar Index, 1992 to 2012, weekly

The chart above shows the value of the US Dollar when considered against a basket of America’s six most important trading partners. Clearly, as US debt levels have increased the relative value of the Dollar has retreated from highs last seen in 2001 / 2002.

But given all the problems in Europe including S&P’s and Moody’s downgrades of several EU nations and the recent good economic news coming out of the United States, the US Dollar seems to be one of the only safe havens left, so I believe there will be additional upside to the greenback in 2012.

Of course since market convention is to price commodities in dollars, a strong dollar implies weak i.e. cheaper commodities. Deflation in other words. But about the only commodity that might outperform is gold, since there still lots of uncertainty and nervousness in the markets.

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