Dollar Index Falls to Lowest Level in Over a Year

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North Korea Missile Launch Hurts U.S. Markets

The U.S. dollar index has fallen to the lowest level since early 2015 after North Korea launched a ballistic missile over Japan, once more causing fear to stir across the market and creating instability in the economy.

While the North Korean missile was not intended as an attack, it was a clear show of force meant to intimidate the U.S. and its allies. U.S. President Donald Trump has struck a bellicose tone with the small nation, claiming in a press conference that North Korea would be met with “fire and fury” if the situation should escalate.

More recently, after the most recent missile test, Trump declared that all options were on the table when it came to dealing with North Korea. While these types of missile tests and harsh words are nothing new for the two countries that have been locked in animosity for decades, the tone and tenor of Trump’s response is more warlike than previous presidents. Couple this with Trump’s penchant for unpredictability, and you have a situation where investors are flocking to safe-haven assets to offset the chance for war.

Given that North Korea is in possession of nuclear arms, any sort of direct conflict between the U.S. and North Korea would be devastating.

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And while the dollar falls, other assets have risen, again showing that confidence is at a low-point in American stability. The price of gold has jumped up dramatically as the North Korea tensions have mounted.

Gold typically has an inverse relationship with the U.S. dollar. In times of stability and belief in U.S. markets, gold often falls and the U.S. dollar rises. Conversely, in situations that are tumultuous and unpredictable, investors prefer to store their money in more secure assets like gold, which are less affected by market fluctuations.

In this case, gold has enjoyed a steady rise over the past month while experiencing a further jump as a result of the renewed North Korean tension.

Earlier in Trump’s administration, the two nations faced off in a much similar situation, with both threatening the other, and markets suffered as a result.

Trump also caused gold to rise while the dollar fell after his attack on an Syrian airbase.

The U.S. economy is therefore vulnerable to further fluctuations should the conflict continue to dominate the media, more missiles be fired by the North Koreans or, in the worst-case scenario, the two countries engage in all-out war.

 

Source

Dollar index falls to lowest level since early 2015 after North Korea missile launch,” MarketWatch, August 29, 2017.

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