As Economies Reopen, the USD Faces this Triple Threat
The U.S. dollar’s status as the global reserve currency has been under attack for many years. But today, these attacks seem to be expanding and intensifying. Let’s look at three recent developments.
Big Bank Bets Against the Dollar
Now that most state economies have at least started to reopen, Goldman Sachs is betting against the dollar, according to a recent CNBC article:
In a note over the weekend, Goldman strategists said that while they had maintained that it was too early to look for “outright and sustained Dollar downside given the balance of cyclical risks,” shorts on the dollar now looked attractive in certain currency crosses.
The article continued by explaining precisely what “short selling” the dollar means:
Short selling a currency involves borrowing that currency, selling it at the current market price and then waiting for the price to fall in order to buy the currency back at a lower price and return the loan.
Specifically, Goldman is betting on the Norwegian krone to outperform the dollar, and thinks the krone is well positioned to do just that.
Recent performance of the dollar (DXY) could be revealing that Goldman Sachs is off to a good start with their bet:
As you can see at the far right of the chart, the dollar’s value is dropping close to levels not seen since early 2018. It’s also severely under the moving average.
Meanwhile, the krone is still above the moving average, and doesn’t appear nearly as “flat” as the dollar.
But the krone is not the only challenge to the dollar’s hegemony; changes to China’s currency represents another one.
4-Letter Potential “Nightmare” for the U.S. Dollar
Right now, the main currency in China is the yuan.
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