Real Money Shifting Into US Dollar Longs

09/26/2014 9:00 am EST


Adam Button of explains how much more US dollar strength (roughly) we need to see in the three biggest currency pairs—in terms of trade and competitiveness—in order to see a strengthening level that has consequences for growth.

New York Fed President Bill Dudley’s comments from earlier this week are getting some fresh attention because they’re the first time anyone at the Federal Reserve has commented on dollar strength since the rally started two months ago.

“If the dollar were to strengthen a lot, it would have consequences for growth,” he said. “We would have poorer trade performance, less exports, more imports,” he said. “And if the dollar were to appreciate a lot, it would tend to dampen inflation. So it would make it harder to achieve our two objectives. So obviously we would take that into account.”

At first blush, those sounded like benign comments (and that was my first impression) but they open a new front for the Fed, a new consideration when they make decisions.

To be clear, at these levels, the dollar is barely a consideration. What does Dudley mean when he says “strengthens a lot”? I think we would need to see roughly another 10-cents of US dollar strength.


Those are the three biggest ones in terms of trade and competitiveness. If we get to those levels it would hurt corporate profits.

The other area to watch is inflation. PCE numbers are due September 29 and the most-recent Fed statement warned about slowing inflation.

Weak price rises and a major spell of dollar strength could cause the unthinkable—the Fed shifting back to neutral.

By Adam Button, Editor,