Dollar.

Building on Karl Popper’s philosophy, George Soros forms market philosophy around the concepts of fallibility and reflexivity.

Fallibility and reflexivity are two important concepts for reading exchange rates. Since human knowledge is incomplete, everyone is prone to making mistakes, so no one can accurately predict future exchange rates.

Expectations and reality also influence each other, leading to a flexible view of the market. Stiglitz, who won the Nobel Prize in Economics, dealt with the asymmetry of information and the incompleteness of the market in information economics.

Market incompleteness is a game-theoretic environment that arises from gaps in information, where bidirectional uncertain factors intervene between our understanding of the market and events.

Therefore, decisions based on human knowledge lead to unintended consequences.

Experiencing the fallibility and reflexivity leads to gaining wisdom about money in exchange for risks and high returns.

Since failure provides more information than success, the scope of understanding reality widens, and the path to critical thinking opens.

With a philosophical understanding of money, one delves into the world of money, reading the fundamentals of the economy and amplifying bidirectional feedback mechanisms.

Dollar

The “Dollar Index,” known as USDX, represents the absolute value of the dollar.

It allows us to objectively assess the strength and weakness of the US currency and understand the state of the US economy.

It was established in March 1973, following the breakdown of the Bretton Woods system, with an initial benchmark of 100, indicating relative strength.

By weighting the major currencies of six countries, the index provides a measure of the dollar’s strength.

The euro has a weight of 57.6%, the Japanese yen 13.6%, the British pound 11.9%, the Canadian dollar 9.1%, the Swedish krona 4.2%, and the Swiss franc 3.6%.

The weights for these currencies were set in 1999 when the individual currencies of European countries were replaced by the euro, and they have remained unchanged since then.

The Chinese yuan is excluded due to significant government intervention in its exchange rate, which often distorts its value.

Generally, a Dollar Index above 100 indicates a strengthening dollar (bullish), while below 100 indicates a weakening dollar (bearish).

Historically, the Dollar Index reached 164.72 in February 1985 during the debt crisis in Latin America and 70.698 in March 2008 during the global financial crisis caused by the subprime mortgage crisis.

If the Dollar Index is 70.698, it means the dollar’s value has decreased by 29.302%.

As of April 2024, the Dollar Index stands at 104.12, indicating the dollar has strengthened by 1.0412 times since March 1973.

A strong US economy tends to increase the value of the dollar and thus the Dollar Index.

However, currency values are also influenced by supply and demand. If the US issues a lot of treasury bonds and other countries buy them, the Dollar Index can decline.

The optimal timing for buying dollars is when the dollar is weak and the Korean won is strong, causing the USD/KRW exchange rate to fall below 1,200 won, even when the Dollar Index is stable.

This indicates a rise in the value of the Korean won, as the dollar’s absolute value remains unchanged.

Consequently, there is a high likelihood that the USD/KRW exchange rate will return to its original level, even when the dollar’s absolute value remains stable.

On the other hand, the optimal timing for selling dollars is when the dollar is strong and the Korean won is weak, causing the exchange rate to rise above 1,200 won, even when the Dollar Index is stable.

When the Dollar Index rises, the value of the dollar increases, leading to a rise in the USD/KRW exchange rate.

Conversely, if the Dollar Index falls, the dollar’s value falls, leading to a decline in the USD/KRW exchange rate.

Calculating the appropriate exchange rate based on the 52-week average exchange rate, the Dollar Index, and the Dollar Gap ratio, it is essential to observe whether the dollar’s absolute value, represented by the Dollar Index, will rise or fall.

By creating their own dollar data based on the feedback mechanism of fallibility and reflexivity, individuals can approach dollar investment more confidently.