If the Fed wants to support the banks by hinting at/or bringing interest rates down (thus increasing the value of the bank's Treasury and Agency paper) they have to let the dollar go. No one wants to bid for a currency if interest rates in other currencies are (risk-adjusted) higher.
And the weaker dollar wouldn't be so bad if the U.S. export economy had grown at the same rate as the internally focused economy. But it didn't. As the rest of the economy grew, manufacturing just flatlined.
The other little factoid about the weaker dollar is the flip side of the above, imports become more expensive, thus adding inflationary pressure at the same time the balance of trade, even on flat unit volume, gets worse.*
From Bloomberg via Yahoo Finance, December 28:
The dollar is poised for its worst year since the onset of the pandemic as Wall Street bets the Federal Reserve is set to lower interest-rates after safely reining in prices.
After being whipsawed by false starts calling for the end of the Fed’s rate hiking regime, a Bloomberg gauge of the greenback is down nearly 3% since January in the steepest annual drop for the US currency since 2020.
Much of the decline materialized in the fourth quarter on growing wagers that the Fed will sharply loosen policy next year as the US economy slows. That dents the dollar’s appeal as other central banks may keep their rates higher for longer.
Swaps traders are now factoring in Fed rate cuts of at least 150 basis points with the first cut coming as soon as March. That’s up from less than 100 basis points in mid-November and double what policymakers penciled in at their most recent meeting. Among speculative traders, dollar positioning has become all the more bearish since the Fed’s December meeting.
Read more: Shorting the Dollar Is Gaining Favor After Fed’s Great Pivot
“Markets are positioned for this ‘Goldilocks’ scenario where the Fed will cut rates enough to stimulate the economy without reigniting inflation pressures,” said Amanda Sunstrom, a fixed income and FX strategist at SEB AB in Stockholm. “That’s driving the dollar performance.”....
United States Balance of TradeThe US trade gap widened slightly to $64.3 billion in October 2023, the highest in three months, compared to a downwardly revised $61.2 billion in September and forecasts of $64.2 billion. It reflects an increase in the goods deficit of $3.5 billion to $89.8 billion and an increase in the services surplus of $0.4 billion to $25.5 billion. Total exports went down 1% to $258.8 billion, led by gem diamonds, pharmaceutical preparations, jewelry, passenger cars, other automotive parts and accessories, trucks, buses, and special purpose vehicles and travel. On the other hand, sales rose for organic chemicals, nonmonetary gold, transport and financial services. Meanwhile, imports edged up a meager 0.2% to $323 billion, prompted by computers, drilling and oilfield equipment and travel while purchases of passenger cars went down. source: Bureau of Economic Analysis (BEA)
