Is the US dollar due a bounce?

The US dollar’s fortunes could be set to improve as the currency’s underlying strengths re-assert themselves.

The dollar’s fortunes could be set to improve, says Neal Kimberley in the South China Morning Post. The US Dollar Index, which measures the greenback’s value against a basket of six other major currencies, has tumbled by more than 9% since March. But the further the dollar falls the more difficult it becomes to argue that it is still overvalued. New European coronavirus outbreaks have taken some of the shine off the rally in the euro. The dollar’s valuation still faces short-term headwinds, says Nouriel Roubini for Project Syndicate. Federal Reserve monetary policy is even looser than that of other major central banks. 

Yet in the longer term the currency’s underlying strengths, the dynamism of US companies and the unsurpassed scale and liquidity of the dollar bond market, are likely to re-assert themselves. “Pax Americana is here to stay”, says Imran Said in Quillette. Far from being eclipsed, America’s share of world GDP has held roughly constant since 1980 at about 25% of global output. US equity markets dwarf all others by valuation. Some point to China’s yuan as a potential dollar replacement, yet capital controls limit its prospects. The dollar was used in 38.77% of global payments in July this year. The renminbi’s share was 1.86%.

Another factor driving the dollar’s recent pullback is its status as a safe-haven asset. As markets have rallied in recent months money managers have felt less need for their greenback comfort-blanket. Yet as Steve Goldstein notes in Barron’s, another safe-haven currency is still riding high. Bank of America says investors have been selling the dollar for the Swiss franc. Slumping real bond yields are reducing the appeal of dollar assets, leading US money managers to conclude that they might as well pay up for the safety of the “Swissie”.

Recommended

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Wholesale gas prices are on a downward trajectory, but does this mean lower energy bills later this year?
27 Jan 2023
Best regular savings accounts – January 2023
Savings

Best regular savings accounts – January 2023

You can earn an attractive rate on the best regular savings accounts. We tell you the best on the market to take advantage of right now
27 Jan 2023
Equity release v downsizing – which is best?
Personal finance

Equity release v downsizing – which is best?

Equity release hit a record high in 2022. But is downsizing a better way to hold on to your money?
27 Jan 2023
Self-assessment tax returns: what you need to know about getting your tax bill right
Income tax

Self-assessment tax returns: what you need to know about getting your tax bill right

Understanding how self assessment works can help you ensure you pay the right amount of tax, as well as avoid penalties for missing the deadline.
27 Jan 2023

Most Popular

House prices could fall 30%. Should investors be worried about a repeat of 2008?
Investments

House prices could fall 30%. Should investors be worried about a repeat of 2008?

Some analysts are predicting that house prices could fall as much as 30%, which, when compared to the fact that prices have jumped 28% since April 201…
24 Jan 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Wholesale gas prices are on a downward trajectory, but does this mean lower energy bills later this year?
27 Jan 2023
Council tax increases 2023 – how much more will you pay?
Tax

Council tax increases 2023 – how much more will you pay?

Your council tax bill will go up in April - we reveal the councils that have confirmed what this year’s increase will be.
23 Jan 2023