Is the dollar due to plunge?

The dollar is bouncing back from its recent falls, trading close to two-month highs this week. But could the slide restart?

Investors are still turning to the US dollar in times of stress. The US dollar index, which measures the greenback’s value against a basket of six major trading partners’ currencies, has slipped by more than 6% since April this year as the stockmarket rally gathered strength. Yet as pandemic and political anxieties resurface, the dollar is bouncing back. The currency was trading close to two-month highs this week. 

Some have asked whether the dollar’s days as the world’s “reserve currency” are ending, says Colby Smith in the Financial Times. But as recent weeks show, in periods of global “financial stress” and “risk aversion” people still want to buy up “dollar assets”, says Adam Slater of Oxford Economics. The greenback’s “dominance is sweeping”. The dollar accounts for about 60% of global foreign-exchange reserves, about three times as much as the euro. 

Not so fast, says Stephen Roach on Project Syndicate. Glaring structural imbalances – not least a budget deficit that has surpassed $3trn this year and the worst current-account shortfall since 2008 – will weigh heavily on the currency. So will the weakening “special aura of American exceptionalism that has given the dollar Teflon-like resilience” since 1945. A key way to boost an exchange rate – an interest-rate hike – has been ruled out by the Federal Reserve. Expect the dollar index to “plunge by as much as 35% by the end of 2021”.

Recommended

The charts that matter: gold up; dollar down
Global Economy

The charts that matter: gold up; dollar down

Gold rallied a little this week, while the US dollar drifted. Here’s how the charts that matter most to the global economy reacted.
10 Apr 2021
The charts that matter: the US dollar flexes its muscles
Global Economy

The charts that matter: the US dollar flexes its muscles

The US dollar continued to strengthen this week. Here’s how the charts that reflect what matters most to the global economy reacted.
3 Apr 2021
The charts that matter: commodity prices pause for breath
Global Economy

The charts that matter: commodity prices pause for breath

Commodity prices took a breather this week. Here’s how the charts that reflect what matters most to the global economy reacted.
27 Mar 2021
Turkey heads for its next crisis after the lira plunges by 15%
Emerging markets

Turkey heads for its next crisis after the lira plunges by 15%

Turkey sacked its central bank governor after just four months in the job, sending the lira down by 15% against the dollar and stocks down by 9%.  
26 Mar 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021