The dollar is in a process of depreciation

By Soren Cocozza

More uncertainty around US policy-making has led to the dollar index weakening more than 9% this year. Also market watchers see further declines.

The dollar is in a process of depreciation given that the investors are losing confidence in US economy based on the reckless, flip-flopping tariffs policy as well as President Trump's threat in the independence of the Fed. The common sense is that if Fed Chair Powell is removed by Trump, the market will crash.

According to Bank of America’s most recent Global Fund Manager Survey, a net 61% of participants anticipate a 10-20% decline in the dollar’s value over the next 12 months — the most pessimistic outlook of major investors in almost 20 years.

The exodus from U.S. assets may reflect a broader crisis of confidence, with potential spillovers such as higher imported inflation as the dollar weakens.

The drop in the dollar has led other currencies to appreciate against it, especially safe havens such as the Japanese yen, the Swiss franc as well as the euro. Since the start of the year, the Japanese yen has strengthened over 10% against the dollar, while the Swiss franc and the euro has appreciated about 11%.

Aside from the safe havens, other currencies that have strengthened against the dollar this year include the Mexican peso, up 5.5%, and the Canadian dollar which has appreciated over 4%. The Polish zloty has strengthened more than 9% and Russian rouble has appreciated over 22% against the greenback.

Some emerging market currencies, however, have depreciated despite the weakness in the dollar. The Vietnamese dong and Indonesian rupiah weakened to a record low per U.S. dollar earlier this month. The Turkish lira also hit an all-time low last week. China’s yuan hit a record low against the dollar nearly two weeks back but has since strengthened.

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