Hot Features
Premium
Trade like a pro: Leverage real-time discussions and market-moving ideas to outperform.
The situation in the Middle East does not seem to be easing, and the Federal Reserve is on track to lower interest rates. It seems that everything points to the dollar continuing to lose ground.
Some even argue that increased trade agreements between some countries in their local currencies will further weaken the U.S. dollar index (DXY), as demand for the latter is declining.
And, of course, there is the ever-mentioned issue of excessive U.S. national debt. For context, the government currently pays an average of $3 billion a day in interest on the debt.
It all sounds pretty reasonable, doesn’t it?
Of course, in theory, it could happen. But it’s important to remember that, despite what many might hope, there’s currently no better alternative to the dollar—neither the euro nor the yuan.
The reason is simple: the US offers deeper and more liquid capital markets, a strong rule of law, a predictable legal system, and a commitment to a free-floating currency regime.
As for the claims about de-dollarization, there is not much visible progress at the moment. Saudi Arabia, for example, may be open to other currencies, but it cannot yet move completely away from the dollar.
The idea that high debt will cause the dollar to collapse is also a bit exaggerated. The United States is not the only country with massive debt. For example, Japan’s debt has long exceeded 200% of GDP.
In the EU, Italy has had a debt-to-GDP ratio above 140% for years. In China, total debt—including government, household, and corporate debt—has surpassed 300% of GDP.
Then there’s the Fed’s rate cuts. Remember, other countries have been doing the same, and the ECB might cut rates again by 25 basis points this week. So, it’s probably too early to write off the dollar.
Finally, if Trump wins again, the USD could even strengthen, so all eyes this week on Tuesday’s debate and, of course, on producer prices and the US consumer confidence index.
