The devaluation of the US dollar turned out to be a significant blow for the currency. Economists are trying to guess whether the greenback is able to withstand the attack. The situation is really tricky as the US dollar may lose its status as the main safe-haven asset.
On the one hand, the greenback has gotten clobbered against global currencies due to the Fed’s ultra-loose monetary policy, rising inflation expectations as well as the White House’s stance and the coronavirus pandemic.
The United States is monetizing ever-larger budget deficits by means of massive money printing thus causing the US dollar depreciation.
This spring, amid overwhelming uncertainties investors were choosing the greenback out of habit. Now, they prefer safer assets, especially gold.
On the other hand, the Fed’s approach looks more accommodative than that of most other major central banks. The currency is supported by the national economy that is growing faster than other leading economies. It remains dynamic and competitive in many leading industries such as technology, biotech, pharmaceuticals, healthcare, and advanced financial services. All these continue to attract capital inflows from abroad.
“To paraphrase Mark Twain, reports of the dollar’s early demise are greatly exaggerated. The dollar’s recent weakness is driven by shorter-term cyclical factors. In the long run, the situation is more complicated,” Nouriel Roubini, professor of economics at New York University’s Stern School of Business, said.
