Despite the dollar’s resilience against predictions of a prolonged fall since the start of the year, many top asset managers believe its days of dominance are limited as the uniqueness of the U.S. economy lessens.
They assert that the dollar is weakening as U.S. interest rates near their peak and the aggressive tightening by the Federal Reserve (Fed) begins to impact the world’s largest economy.
This trend is expected to pave the way for currencies from developed nations such as Japan’s yen and New Zealand’s dollar, along with those from emerging markets like Brazil’s real and Colombia’s peso, to strengthen, according to AllianceBernstein and UBS Asset Management.
As inflation slows down, there is increasing conviction that the U.S. central bank may end its rate-hiking campaign in the coming months.
Observers believe this could create room for other currencies to outperform in the latter half of 2023-2024.
Investors are making their bets on which currencies will benefit from the dollar’s decline.
The yen is seen as a major beneficiary, and other top contenders include the Swiss franc, euro, and Latin American currencies.
Nevertheless, some remain cautious, pointing to the United States’ relative economic strength and potential for higher rates if inflation doesn’t return to the Fed’s 2% target.