The US dollar is the strongest in two decades. So what does his growing power mean for the art market?

The US dollar is the strongest in two decades. What does this mean for the art market?

I started thinking about it when the greenback hit a 20-year record against a basket of currencies including the euro and sterling. The US dollar index is up 10 percent so far this year.

The rise “has left a trail of devastation,” Bloomberg reporters wrote this week, citing the rising cost of food imports, deepening poverty around the world and the fall of the Sri Lankan government. Global corporate giants from Netflix to Johnson and Johnson blamed the dollar’s strength for a significant drop in revenue from their second-quarter earnings. The Japanese yen has fallen to a 24-year low.

The dollar’s strength is the result of the US Federal Reserve’s attempts to stem inflation by raising interest rates, most recently with yesterday’s rate hike. It is also one of the most important economic indicators that can affect the art trade. With a record $2.7 billion in New York auction sales in May and a second quarter slower When it comes to Asian buying, there are signs that the art market has peaked. Concerns about recession in broader US economy loom big.

In the art market, “there’s going to be an impact from these pretty big f’sFluctuations, for sure,” said David Schrader, private sales czar of Sotheby’s and former managing director at JPMorgan Chase and Co currency is strong maintains.”

Schrader said he vividly recalled the impact of the sterling collapse during the June 2016 Brexit referendum, which halved two weeks of London auctions. “All Americans Customers said, “This is amazing! Things just got 25 percent cheaper,” he said. And so they went shopping.

America has been the largest art market for decades, and its purchasing power has only grown this year. Yankee buyers accounted for 44 percent of Christie’s $3.5 billion global auction sales in the first half of 2022, the highest percentage in seven years, according to Bonnie Brennan, the company’s president of the Americas.

Yves Kleins Anthropometrie de l’époque bleue, (ANT 124). Courtesy of Christie’s.

American purchase Outside of the United States increased 35 percent compared to the same period in 2021, she said. Paris, for example, saw a 62 percent increase in American bids and purchases since a year ago, boosted by the Givenchy auction that celebrated “le gout Francais,” or French taste. In London, an American buyer snagged a large-scale painting by Yves Klein for £27.2million, against the presale estimate of £24million, the third-highest result of the 20th and 21st Century Art evening auction. (Prices include fees, estimates do not). That’s $33.4 million on June 28, the day of the London evening sale. A year earlier, the same price in pounds would have meant $37.8 million, or $4.4 million more.

Anecdotally, Americans are spending more than ever at European shops, hotels and restaurants, said Schrader, who was recently on the continent. Should the dollar stay strong, it’s easy to see how this mentality could spread to art at upcoming fairs like the nascent Frieze Seoul in early September, as well as Frieze London and the inaugural Art Basel in Paris. “American collectors are still the engine,” said Jean-Paul Engelen, President of the Americas and Associate Worldwide Director of 20th Century and Contemporary Art at Phillips. “This could be an opportunity for them.”

Keep in mind that while the dollar is the primary currency of the art trade, artists often prefer to be paid in their local currency, regardless of where the works are sold. So when you buy a painting by an American artist in a Belgian gallery, you pay in US dollars.

That means non-US collectors would consider a currency-only premium. How significant is that? “For the 0.1 percent who are the only ones who can afford this art, the US dollar is already part of global wealth management,” said Belgian collector Alain Servais. “The rise in the US dollar has been an advantage for me, not a burden.”

That’s why currency is the least of Servais’ concerns when it comes to buying American art.

“I’m much more concerned about the costs and challenges of transportation, which is now prohibitive and much more expensive than the 10 percent rise in the US dollar,” he said.

According to collectors and consultants, shipping prices have at least doubled since before the pandemic. “Perhaps the dollar’s strength is being countered somewhat by the exorbitant rise in the cost of crating and shipping,” said Allan Schwartzman, a New York art consultant.

Auctioneer Adrien Meyer places bids during Christie's 20th Century evening auction in New York, May 2021.  Photo: Christie's Images Ltd.  2021

Auctioneer Adrien Meyer places bids during the evening auction of Christie’s 20th Century. Christie’s Images Ltd. 2021

According to David Nahmad, the patriarch of a powerful art-collecting family and a well-known foreign exchange dealer, currency fluctuations may matter even less at the Masterpiece level given the wealth of the buyers and the rarity of the material.

“If you offer me a great Picasso, I won’t ask if it’s in Swiss francs, US dollars or British pounds,” Nahmad said. “I will definitely buy it. And I will not stop because of a 10 percent devaluation or appreciation.”

The supply of high-quality material is much more important than the exchange rate.

“There is a supply shortage,” Nahmad said. “It’s almost impossible to get great collections.”

The US dollar’s strength could be positive for the blue-chip portion of the market, according to auctioneers. “We are seeing a consistent correlation: dollar strength and strength at the highest market levels,” Christie’s Brennan said. “The dollar is the most important currency in the world. It’s safe, it’s stable. As it moves up, we may see a parallel in the art world with more established and veteran artists versus new emerging artists. Like an escape to quality.”

But some wealthy art buyers are yet to look at art to profit from currency arbitrage.

“In my opinion, real estate would be a better arena to strike a deal with dollar strength,” said Evan Ruster, a New York-based art collector and commercial real estate agent. “Please find me a house in southern Italy.”

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