The value of the U.S. dollar relative to other currencies can partially explain speculative influence on cotton prices. As the U.S. dollar weakens, it can encourage flows of money into alternative financial markets like commodity futures. In addition, a weakening U.S. dollar in theory would stimulate more U.S. exports of physical cotton since it would be cheaper relative to competing foreign cotton. So there is a double reason for cotton markets to get stronger when the U.S. dollar weakens, and vice versa.
The weak dollar/stronger cotton price relationship has generally been the case except during very specific situations like a sustained weakening euro currency (e.g., late 2009/early 2010, and again in late 2011). Since 2015 the notably stronger dollar has been viewed as a headwind to cotton prices. The longer term rally in the U.S. dollar index since August 2014 has been attributed to improved U.S. economic prospects, improved U.S. trade balances, and expectations of higher U.S. interest rates. The impact of Trump administration policies on the dollar remains to be seen.
For the week ending early Friday November 20, the U.S. dollar index gyrated up and down in an overall weekly down-trend (see chart below courtesy of Barchart.com). Dollar influences this week appeared related to vaccine possibilities amidst increasing pandemic infections. To the extend this leads to business closures, that is dollar negative. To the extent that leads to central bank interventions, that is also dollar negative. To the extent it leads to risk off reduction in demand for securities, it is dollar positive.