The global economic context of recent years has called into question the place of the king dollar (USD). According to analysts at investment manager PIMCO, the currency could gradually lose its status as a safe haven, amid a particularly fluid macro landscape.
Is the safe haven status of the dollar king threatened?
So says Gene Frieda, a PIMCO analyst. He explains that the apparent health of the dollar (USD) since the COVID-19 crisis of 2020, is due to the global context, which favored assets historically considered reliable :
“The dollar has been supported by the crises of 2022 – the Russian-Ukrainian war, rising energy costs, inflation – and how far these will weaken in 2023.»
While the US Federal Reserve is trying to curb inflation, by raising its key rates two days ago for the eighth consecutive time, the signals are subsiding, however. If the United States begins to get its inflation under control, and the COVID-19 crisis slips further and further into the rearview mirror, this could help bring down the dollaragain according to PIMCO:
“PIMCO believes that the dollar, which has depreciated since hitting a record high of 20 last September, expected to continue falling in 2023 as inflation declines, recession risks decline, and other crises diminish in magnitude.»
According to the analyst, the strength of the dollar is indeed not solely based on the economic health of the United States – it also reflects the fear of investors, who flock to an asset that is supposed to be reliable in times of crisis. In a global economic context which tends to be less tense, the latter are therefore less attracted to the USD.
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A context that will lead to a fall in the dollar?
PIMCO also notes other factors that could contribute to “USD weakness“. The eventual halt in the Fed’s rate hike should set an example for other economies to follow. Riskier assets will also become more attractive as investor confidence returns – this of course includes cryptocurrencies. Finally, China’s zero-COVID policy, which has strangled its economy, is easing, which will also lead this great economic power to regain greater stability.
Hence a clear conclusion from PIMCO:
“We are waiting for each other that the USD continues to lose its attractiveness as a safe haven currency.»
We also note that the specter of payment default has not yet been ruled out for the United States, and that it continues to cause concern at the global level. The political deadlock in which the US Congress finds itself, which is unable to agree on the US debt ceiling, will continue to weigh on this global context. All of this combined therefore suggests a continuation of the USD decline.
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