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Expand chart
Data: Investing.com, Macrotrends; Chart: Andrew Witherspoon/Axios

Fears of a major currency devaluation by China have gripped the market in recent days, but if history is a guide, it's really a dollar devaluation that should worry investors.

The big picture: President Trump's dissatisfaction with the dollar's strength and the boiling trade war with China are setting the stage for a second Plaza Accord, or this time a "Mar-a-Lago Accord," experts say, with the dollar falling and the yuan rising.

Why it matters: A weak dollar makes U.S. exports more competitive internationally, but also weakens Americans' purchasing power.

Background: In September 1985, the U.S. joined with France, Germany, Japan and the U.K. to create the Plaza Accord, an agreement to reduce the value of the dollar, particularly against the Japanese yen.

  • The value of the dollar fell by 51% versus the yen from 1985 to 1987, and by 1995, it had dropped more than 70%.

What they're saying: "The stronger dollar is bad not just for the US, but also for countries with significant amounts of dollar denominated debt. Think most emerging markets," Douglas Borthwick, managing partner at Makro Intelligence, tells Axios in a message.

  • "There comes a time when the dollar is so strong that it is destabilizing to the world economy. The way out of that is a Plaza Accord. A re-alignment of exchange rates."

How it works: In addition to helping U.S. multinational firms and emerging market countries with high amounts of debt in dollars — which gets more expensive as the dollar appreciates — major exporting countries in Europe as well as Japan would benefit from a stronger yuan because it would make their exports more competitive against China's.

What's next? Kuniyuki Hirai, head of trading at investment bank MUFG, says he sees the yuan falling as low as 6.05 per dollar in the not-too-distant future.

Yes, but: Many are skeptical of Trump's ability to reach a multilateral deal of this size and scope, given his general antagonism toward allies and adversaries alike, or that China would allow such an agreement. But China may not have a choice.

Go deeper

Trading platforms curb trading on high-flying Reddit stocks

Major trading platforms including Robinhood, TDAmeritrade and Interactive Brokers are restricting — or cutting off entirely — trading on high-flying stocks like GameStop and AMC Entertainment.

Why it matters: It limits access to the traders that have contributed to the wild Reddit-driven activity of the past few days — a phenomenon that has gripped Wall Street and the country.

Updated 2 hours ago - Economy & Business

2020 was the economy's worst year since 1946

Source: FRED; Billions of chained 2012 dollars; Chart: Axios Visuals

One of the last major economic report cards of the Trump era lends perspective to the historic damage caused by the pandemic, which continued to weigh on growth in the final quarter of 2020.

By the numbers: The U.S. economy grew at a 4% annualized pace in the fourth quarter, a sharp slowdown in growth compared to the prior quarter. For the full year, the economy shrank by 3.5% — the first annual contraction since the financial crisis and the worst decline since 1946.

Dion Rabouin, author of Markets
3 hours ago - Economy & Business

How GameStop exposed the market

Illustration: Eniola Odetunde/Axios

Retail traders have found a cheat code for the stock market, and barring some major action from regulatory authorities or a massive turn in their favored companies, they're going to keep using it to score "tendies" and turn Wall Street on its head.

What's happening: The share prices of companies like GameStop are rocketing higher, based largely on the social media organizing of a 3-million strong group of Redditors who are eagerly piling into companies that big hedge funds are short selling, or betting will fall in price.