Disputes over the US dollar status did not bring any results as analysts at Morgan Stanley agreed that the greenback is the best safe-haven asset. The think-tank has carefully studied the state of affairs in the world of reliable assets during the crisis.
Despite a recent drop to record lows against a basket of its peers, the US dollar is the most attractive funding currency for carry trades. “Carry trades happen when investors borrow in a low-yielding currency to fund investments in higher-yielding assets elsewhere to receive the interest,” CNBC says.
The US Fed’s low rates and monetary policy have made the US dollar a perfect instrument for the carry trade.
“During times of uncertainty, investors may cash out of those high-yielding assets and flip them back into the currency that was borrowed, which in turn can strengthen it,” analysts said.
However, the current policy poses serious risks to the US national currency. “The longer the stalemate in DC remains in place the greater the danger that the dollar selloff can turn into a rout,” Boris Schlossberg, managing director at BK Asset Management, wrote.
Notably, not so long ago, former Morgan Stanley Asia chairman Stephen Roach predicted a slump in the greenback amid the US budget deficit. His forecast called for a 35% drop against other major currencies in the next two years.
