The multi-pronged “Abenomics” strategy explains why the yen has accelerated its downward plunge and contributed to the relative strength of the dollar.
But the dollar can only ride foreign central banker’s missteps so long before it sees itself losing value…
Trouble Ahead for the U.S. Dollar
Over the last two months, the dollar has shot up over 5%, which is a huge move for any currency to make in such a short period, Money Morning’s Krauth said.
He said he sees this as the peak, if it doesn’t soon take out its highs experienced in July 2013.
The dollar is on fragile footing at the moment and likely can’t sustain this rise.
The biggest threat to the dollar, at least in the short term, will come from the U.S. Federal Reserve, and any sudden policy measures that could instill a lack of confidence in the dollar moving forward.
“I think that what will eventually cause the dollar to weaken significantly will be something that is more U.S.-specific,” Krauth said. “If much higher inflation expectations became entrenched, or if the Fed were to stop the current tapering process or even reverse and ramp it back up, then people could look to exit the dollar.”
Even more troubling are the threats to U.S. dollar hegemony from China and Russia. The two countries are settling more international transactions in their own currencies, effectively bypassing the dollar all together.
These cues could signal that two major economic powers are weaning themselves off the dollar, further threatening the U.S. dollar’s value in international markets.
All of these factors taken together paint a dismal future for the dollar, and put a damper on its recent gains, which themselves have been entirely sparked by forced currency devaluation measures of central bankers abroad.
“I don’t think that we’re going to see that stay all that strong for that much longer,” Krauth said.
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