From foreign countries trying to dethrone the dollar’s hegemony as global reserve currency, all the way to rising inflation weakening it… the U.S. dollar is in trouble.
Pundits like Jim Rickards said (back in 2016): “The dollar won’t lose its reserve currency status overnight” — and he was right. But a new and disturbing signal could finally be revealing the end game.
You can see the dollar’s loss of about 10% value against other currencies and its persistent downward trend since March 2020 reflected in the dollar index chart below:
To get an even better idea of that persistent downward trend, we need to look all the way back to 2002, when the dollar index (DXY) peaked around 117. Not only is today’s dollar worth 10% less than last year’s – it’s 25% weaker than in 2002.
In fact, one forecast reported on Bloomberg in June 2020 called for a 35% decline in value by the end of 2021, which would leave the dollar index at 65. If that plays out, the index would be reporting its lowest value in at least 35 years.
In addition, a new Bloomberg report gave three reasons why the “dollar is now trading at the lowest level against its peers since 2018”:
1) Sharp widening in the U.S. current-account [trade] deficit.
2) Rise of the euro.
3) A Federal Reserve that would do little in response to any weakness in the greenback.
There is no doubt the trade deficit is a problem. According to the Bureau of Economic Analysis, the gap between imports and exports is at its widest since 2006. That won’t help the dollar recover.
The Fed’s inflation policy isn’t likely to help the dollar much because it “printed” itself into a corner with its loose monetary policy. The same Bloomberg piece further clarifies the Fed’s inflation strategy:
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