History of Dollar Movements
Patterns of Dollar Movements During Easing Cycles
Experts at Société Générale Bank released a research note discussing the historical performance of the dollar during past easing cycles of the Federal Reserve, coinciding with market expectations of the beginning of a U.S. easing cycle in September.
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The experts at the French bank noted that the chances of U.S. monetary easing starting in September have increased, and past easing cycles had varied effects on the performance of the U.S. dollar. Nevertheless, the general trend indicates a delayed response of the dollar index rather than an immediate drop.
Société Générale economists highlighted that since 1984, there have been 7 tightening cycles and about 6 easing cycles by the Federal Reserve, as follows:
- Easing Cycle 1984-1986: The dollar reached its peak in February 1985 after a rate cut of about 175 basis points.
- Easing Cycle 1989-1994: The dollar reached its peak shortly after the first rate cut.
- Tightening Cycle 1994-1995, followed by Easing in 1995-1996: The dollar continued to rise until 1998 before declining ahead of monetary easing due to the LTCM collapse.
- Easing Cycle 2000: The dollar fell by the time the Federal Reserve cut rates in December 2000, then recovered to a new high in 2001 but trended downward in 2002.
- Tightening Cycle 2004-2006, followed by Easing starting in 2007: The dollar was already in decline during this period.
- Easing Cycle 2019: The dollar fell after the second and third rate cuts in late 2019, rose in early 2020, increased during the COVID-19 crisis, then fell after Federal Reserve intervention.
Conclusion
Société Générale experts emphasized that historically, the U.S. dollar has a delayed reaction to the Federal Reserve’s easing policies. However, significant declines occurred between 1985-1987 and 2001-2008, while smaller cycles had varied impacts. The historical context suggests that any effect on the U.S. dollar may not be immediate, and the extent of the easing cycle will play a crucial role in determining the dollar’s trajectory.
History of Dollar Movements