Stephen Roach, former Morgan Stanley Asia chairman, is sounding the alarm on the U.S. dollar….[predicting that the U.S. Dollar Index] will drop by 35% and foresees legitimate challenges to the greenback’s status as the world’s dominant reserve currency. [Here are the reasons why.]
- …Roach notes that the U.S. entered the COVID-19 pandemic with an already low domestic savings rate of only 1.4 percent of national income and, courtesy of the new gigantic budget deficits, he projects we are going to see a negative savings rate of –5 percent to –10 percent. The nation’s current account deficit looks set to soar.
- Roach feels America has squandered its global leadership in numerous ways: de-globalization, trade protectionism and poor response to Covid 19 to name a few….
The dollar has remained quite strong during the past few years because of foreigners’ belief that the U.S. is “exceptional”…[and, as such,] have been willing to pay a premium for the dollar. However, the bloom may be off the rose, so to speak…
- The U.S. Dollar Index… which measures the greenback against six other major currencies, is currently down around 9% from its March highs.
- Hedge funds are warning that shorting dollars is now a crowded trade.
A lower dollar will mean two things for foreigners:
- they can buy more U.S. assets (including Treasuries) needed to fund the growing U.S. current account deficit with less of their own currencies and
- a lower dollar buying point makes U.S. assets more attractive to foreigners as the U.S. currency risk has been decreased.
Editor’s Note: The original article by Carrie McCabe has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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