- Stephen Roach of Yale University predicted the decline of the US dollar in 2021.
- Roach points to the growing current account deficit and the falling net saving rate as the two main drivers driving the dollar down.
- The dollar has been down against most of the major currencies over the past six months. Other analysts also forecast a sharp drop in value.
Yale University senior economist Stephen Roach said the U.S. dollar will depreciate by the end of 2021. He also said the chance of a double-dip recession is now over 50%.
roach repeated similar warnings in Juneand describes a crash of 35% as “practically inevitable”. But now he sees the indicators of collapse – the US current account deficit and a fall in savings – much worse than before.
His terrible warnings have become more believable over the past few months. The The dollar has fallen repeatedly against the G10 currencies;; Other analysts and currency forecasters have also forecast the decline.
Stephen Roach: The US dollar is going to crash
We have data that confirm both savings and current account dynamics in much more dramatic ways than even I was looking for.
Roach argues that these two factors will push the dollar much lower:
The US current account deficit … deteriorated at a record-breaking rate in the second quarter. The so-called net savings rate, which is the sum of the savings made by individuals, businesses and the government sector, also saw a record decline in the second quarter.
He noted that for the first time since the global financial crisis, the savings rate has entered negative territory. This means that spending is crowded and the oversupply of dollars increases the risk of inflation.
Roach believes a crash is inevitable given the “laws” of the economy:
Since we don’t want to save and grow, we run these current account deficits to borrow excess savings, and that always pushes currencies down. The dollar is not immune to this time-honored adjustment.
Signs of weakening
Roach’s prognosis is becoming more believable by the day. The US dollar index, which tracks the value of the dollar against a basket of currencies, fell from $ 102.82 on March 16 to $ 94.60 today.
The dollar has also fallen against G10 currencies in recent months. The Australian dollar and the New Zealand dollar are up 20% and 14% respectively against the greenback over the past six months. The pound is up 10% while the euro is up 8%.
In addition to Roach, other analysts are also predicting a US dollar crash. As early as April, UBS forecast a sharp decline in the second half of 2020. Hartmut Issel, Head of Asia-Pacific Equities, said at the time“The dollar doesn’t have too much to offer anymore.”
ONE Reuters poll of currency forecasters published in July NAB Group’s Gavin Friend told Reuters:
The dollar rises two times: when you mitigate risk or when there is a situation where the US is leading the global recovery and we don’t think it will be any soon.
It looks very bad for the dollar. And the longer The coronavirus pandemic continuesthe more likely it will be that its status as the world’s reserve currency will be tarnished.
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