Stephen Roach, a Yale University researcher and former Morgan Stanley Asia chairman, told MarketWatch that his forecast for a sharp deterioration of the U.S. dollar could be a short-term phenomenon, not an event that is looming in the distance.
“I think it is something that happens sooner rather than later,” the economist told MarketWatch during a Monday afternoon interview.
Check out: “The dollar will fall very, very sharply,” warns the eminent Yale economist “In a COVID time everything is going at warp speed,” Roach told MarketWatch on Monday. It has made the contraction of the U.S. economy from an employment rate which has been hovering at about 50-year low at around 3.5% at the beginning of 2020 and to present to around 49 million more unemployed people since the pandemic took hold in March. He also noted the rapid and unprecedented fiscal and monetary response which has ballooned the Federal Reserve balance sheet of over $7.2 trillion to $ 4 trillion at the beginning of the year, as examples of the promptness with which the currency market could change.
Read: One of the numbers to look at COVID-19 the toll on American lives and livelihoods
The roach is calling for the dollar will soon decline of 35%, against his main rivals, citing increases in the nation’s deficit and the decline in savings.
“This massive shift of fiscal stimulus will blow on the national saving rate and the current account deficit,” he told MarketWatch, reiterating comments he had made earlier in the interviews and in an op-ed published by Bloomberg News on June 14.
Last week, the UNITED states current account deficit, a measure of the nation’s debt to other countries decreased by 0.1% in the first quarter, down from $104.2 billion from a revised $ 104.3 billion in 2019 fourth quarter. The current account shows whether a country is a net lender or debtor.
Roach has said that its recent warnings on the us dollar have sparked intense emotions, responses from readers and critics, because he believes that the UNITED states at a particularly sensitive time in history.
He said that the racial upheaval — sparked by the death of George Floyd — the pandemic and the intensity of the presidential election have combined to get powerful responses from readers that he has not received since his days writing financial commentary at Morgan Stanley.
He said that during this time, you are going to be “hair-trigger reactions” of people.
“We are at a critical point in the policy cycle and the dollar is a relative price, if you make a comparison with the united States and in other countries, and there are some really strong opinions against analysts who” question the US dominance, he explained.
Asked whether investors should be afraid of a falling dollar, Roach said that this would not be the first time that the dollar has dropped significantly, and that “fear is a question of context.”
The fear may be justified “if they are not prepared and had not covered and have not thought of what some of these options are enjoy it,” he says, pointing to the euro as a possible alternative of dollars for the currency of the buyers. In the past, he said that China’s yuan
can be considered as more attractive for investors, but this point of view depends on China following through with the structural reforms that the country is in the process of manufacturing-heavy economy to a more service-oriented.
A measure of the ball, the ICE US Dollar Index
has been weakened in the last 30 days, a decrease of 2.9%, but is slightly up on the year, an increase of 0.7%, according to FactSet data.
The index measures the dollar against a basket of six rival currencies, including the euro
and the yen
A weaker dollar has implications for the assets and the stock market, including the Dow Jones Industrial Average
and the S&P 500 index
with most of debt denominated in dollars. In addition, a majority of cross-border financing and international trade is conducted in dollars.