The US dollar is the strongest it has been in two decades. What does this mean for the art market?
I started thinking about it when the greenback hit a 20-year high against a basket of currencies, including the euro and the pound. The US dollar index is up 10% year-to-date.
The climb ‘left a trail of devastation’, Bloomberg reporters say wrote this week, citing rising food import costs, worsening global poverty and the overthrow of Sri Lanka’s government. Global corporate giants from Netflix to Johnson and Johnson have blamed the strength of the dollar for a large part loss of income in their second quarter earnings. The Japanese yen plunged to its lowest level in 24 years.
The dollar’s strength is the result of the Federal Reserve’s attempts to curb inflation by raising interest rates, with the latest hike yesterday. It is also one of the main economic indicators that can have an impact on the art trade. With a record $2.7 billion in New York auctions in May and a second quarter to slow down in Asian buying, there are signs that the art market has peaked. Concerns about the recession in the entire US economy loom big.
On the art market, “there will be an impact of these pretty big ffluctuations, of course,” said David Schrader, Sotheby’s private sales czar and former managing director of JPMorgan Chase and Co. maintains.
Schrader said he vividly remembers the impact of the pound’s collapse during the Brexit referendum in June 2016, which split two weeks of bidding in London. “All Americans customers were like, ‘This is amazing! Things got 25% cheaper,” he said. And so they went shopping.
America has been the biggest art market for decades, and its buying power has only grown this year. Yankee buyers accounted for 44% of the $3.5 billion in global auctions at Christie’s in the first half of 2022, the highest percentage in seven years, according to Bonnie Brennan, the company’s president for the Americas.
American purchase outside of the United States increased by 35% compared to the same period in 2021, she said. Paris, for example, saw a 62% spike in U.S. bidding and buying a year ago, boosted by Givenchy’s auction that celebrated “le Goût Français” or French taste. In London, a US buyer snagged a large-scale painting by Yves Klein for £27.2million, against a pre-sale estimate of £24million, the third highest result of the evening sale of 20th and 21st century art. (Prices include fees, quotes not). That’s $33.4 million on June 28, the day of the evening sale in London. A year earlier, the same price in pounds would have meant $37.8 million, or $4.4 million more.
Anecdotally, Americans are spending more money than ever in European stores, hotels and restaurants, said Schrader, who was recently on the continent. If the dollar remains strong, it’s easy to see how this mentality could carry over to art at upcoming fairs such as the fledgling Frieze Seoul in early September as well as Frieze London and the first iteration of Art Basel in Paris. “American collectors are always the driving force,” said Jean-Paul Engelen, Chairman of the Americas and Global Co-Director of 20th Century and Contemporary Art at Phillips. “It could be an opportunity for them.”
It should be borne in mind that while the dollar is the main currency for the art trade, artists often prefer to be paid in their local currency, regardless of where the work is sold. Thus, if you buy a painting by an American artist in a Belgian gallery, you pay in American dollars.
Which means non-US collectors would consider a premium based on currency alone. How important is it? “For the 0.1%, 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 rising US dollar has been a benefit to me, not a burden.”
This is why currency is the least of Servais’ problems, as far as the purchase of American art is concerned.
“I’m much more concerned about the cost and challenges of transportation, which is now prohibitively expensive and much more expensive than the 10% rise in the US dollar,” he said.
Shipping prices have at least doubled since before the pandemic, according to collectors and advisers. “Perhaps the strong dollar is somewhat offset by skyrocketing crating and shipping costs,” said Allan Schwartzman, an art adviser from New York.
At the level of masterpieces, currency fluctuations may matter even less due to the wealth of the buyers as well as the scarcity of the material, according to David Nahmad, the patriarch of a powerful family of art collectors. and a known currency trader.
“If you give me a big Picasso, I won’t ask if it’s in Swiss francs, US dollars or pounds sterling,” Nahmad said. “I’ll buy it no matter what. And I’m not going to stop because of a 10% devaluation or appreciation.”
Far more important than the exchange rate is the supply of premium materials.
“There is a supply shortage,” Nahmad said. “It’s almost impossible to get large collections.”
The strength of the US dollar could have a positive impact on the blue chip segment of the market, according to auction officials. “We can see a consistent correlation: dollar strength and strength at the higher levels of the market,” Christie’s Brennan said. “The dollar is the most important currency in the world. Sure, it’s stable. As it goes up, we can see a parallel in the art world with more established and tested artists as opposed to new emerging artists. Like a flight to quality.
But some wealthy art buyers don’t yet look at art at all to profit from currency arbitrage.
“In my mind, real estate would be a better arena to get a deal on the strength of the dollar,” said Evan Ruster, a New York-based art collector and commercial real estate broker. “Find me a house in southern Italy, please.”
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