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”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Premium Bonds winners announced – did you scoop the September jackpot?
NS&I has announced the winners for September’s Premium Bonds prize draw, with two lucky savers becoming overnight millionaires. Did you win this month?
-
What is the 25x retirement rule and does it work?
The 25x retirement rule has been around for decades but many experts question if it is a suitable strategy
-
Why you should keep an eye on the US dollar, the most important price in the world
Advice The US dollar is the most important asset in the world, dictating the prices of vital commodities. Where it goes next will determine the outlook for the global economy says Dominic Frisby.
-
What is FX trading?
What is FX trading and can you make money from it? We explain how foreign exchange trading works and the risks
-
The Burberry share price looks like a good bet
Tips The Burberry share price could be on the verge of a major upswing as the firm’s profits return to growth.
-
Sterling accelerates its recovery after chancellor’s U-turn on taxes
News The pound has recovered after Kwasi Kwarteng U-turned on abolishing the top rate of income tax. Saloni Sardana explains what's going on..
-
Why you should short this satellite broadband company
Tips With an ill-considered business plan, satellite broadband company AST SpaceMobile is doomed to failure, says Matthew Partridge. Here's how to short the stock.
-
It’s time to sell this stock
Tips Digital Realty’s data-storage business model is moribund, consumed by the rise of cloud computing. Here's how you could short the shares, says Matthew Partridge.
-
Will Liz Truss as PM mark a turning point for the pound?
Analysis The pound is at its lowest since 1985. But a new government often markets a turning point, says Dominic Frisby. Here, he looks at where sterling might go from here.
-
Are we heading for a sterling crisis?
News The pound sliding against the dollar and the euro is symbolic of the UK's economic weakness and a sign that overseas investors losing confidence in the country.