Has the US dollar had its day?

Soaring debt levels and the failure of America to manage the Covid-19 crisis is undermining trust in the world’s reserve currency. 

Has the “mighty greenback had its day”? asks Jonny Fry in City AM. Soaring debt levels and the failure of America to manage the Covid-19 crisis is undermining trust in the world’s reserve currency. 

The ICE US dollar index, which compares the value of the greenback against a basket of other currencies, has advanced by just over 1% this year. The US dollar is considered a safe-haven asset, so its value surged during the market meltdown in March, only to retreat as the stock rally gathered pace.

“A crash in the dollar” could well be looming, says Stephen Roach on Bloomberg. The fundamental issue is that Americans do not save enough, forcing the economy to import foreign capital: America has run a current-account deficit every year since 1982. That arrangement depends on the trust and confidence of foreign savers, many of them Chinese. “Gross mismanagement” of the coronavirus pandemic, combined with “wrenching social turmoil”, is not a good look for a global leader. Growing debt is another threat to the dollar’s credibility. The Federal budget deficit looks set to hit a peacetime record of 17.9% of GDP in 2020.

Still, the dollar’s role as a global safe haven is not over yet: the currency gained ground again as stocks wobbled at the end of last week. The greenback’s fundamentals may be weakening, but for the time being nervous markets appear inclined to put a floor under it.

Recommended

Whether it’s cryptocurrencies or investment trusts, make sure you know what you’re investing in
Investment strategy

Whether it’s cryptocurrencies or investment trusts, make sure you know what you’re investing in

Many people scoff at cryptocurrency speculators pouring money into an asset they may barely understand. But the same could be said of investors in man…
26 Jan 2022
How to invest in energy and metals as tech stocks crash
Commodities

How to invest in energy and metals as tech stocks crash

It’s been a terrible week for stockmarkets. But not everything is crashing – “real” assets such as metals and energy are holding up well and should ha…
26 Jan 2022
Shareholder capitalism: the world’s most powerful asset manager wants you to have your say
ESG investing

Shareholder capitalism: the world’s most powerful asset manager wants you to have your say

Under shareholder capitalism, the owners of the companies the big fund managers invest in are us – yet our voice is rarely heard. Now one asset manage…
26 Jan 2022
Julian Brigden: markets are at a huge inflexion point
Investment strategy

Julian Brigden: markets are at a huge inflexion point

Merryn talks to Julian Brigden of Macro Intelligence 2 Partners about the unwinding of the US stockmarket's super-bubble, and the risks and opportunit…
25 Jan 2022

Most Popular

Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022