Bi-Weekly Geopolitical Report – Prospects for the Dollar in a Fracturing World (September 9, 2024)
by Patrick Fearon-Hernandez, CFA | PDF
As investment managers and strategists, we are often asked by clients about our outlook for the United States dollar. Very often, our clients have heard some worrisome news about a rival currency becoming more attractive than the greenback or global investors selling off the dollar because of economic or political problems in the US. Their concern is often about the US’s growing debt or political polarization. As the world continues to fracture into relatively separate geopolitical and economic blocs, another concern is that China, Russia, Iran, and some of their authoritarian allies want to stop using the dollar for trade and investment. If those countries cut their demand for the greenback, the fear seems to be that the currency will lose value, its purchasing power will decline, and consumer price inflation will rise.
In this report, we provide some guideposts for thinking about exchange rates. We then examine the main global forces that could theoretically reduce demand for the dollar and cut its value. We conclude with a discussion of the prospects for the dollar and the implications for investment strategy.