Jefferies predicts prolonged Dollar decline as Trump's style and soaring U.S. debt rattle global confidence
The U.S. dollar could be embarking on a long-term downtrend, fueled by escalating economic imbalances and increasing political risk, says a new report from Jefferies.
The investment bank cites a worrying combination of factors in support of its prediction, noting America's disproportionate dominance of world stock indices, rising debt levels, and US president Donald Trump's leadership style as warning signs for the US dollar, according to ANI.
A Peak in "American Exceptionalism"?
Jefferies cited a turning point on December 24 last year, when the US set a record 67.2% of the
MSCI All Country World Index
, as per the rpeort. Optimism in the market was strong about "
American exceptionalism
", according to ANI.
The bank also mentioned that "this level was already close to breaking out on the charts, and now the breakout has finally happened," as per ANI.
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Live Events
While, Jefferies clarified in its report that this would not mean the US stock market would collapse, according to ANI. But the issue is that the US holding 67% of the index is considered unusually high, ANI reported.
The ANI report highlighted that, this is important as the US accounts for only 26.4% of the global economy in terms of nominal GDP in US dollar terms and just 14.9% based on purchasing power parity (PPP). This large gap indicates that the US dollar will be on a long-term downward path, as per the report.
Donald Trump's Return Adds to Dollar Volatility
Jefferies wrote that, "There are several reasons to bet on a weaker dollar. One not unimportant one is that Donald Trump himself wants a weaker dollar," quoted ANI.
According to the investment bank, a key reason for the weaker US dollar is Trump due to his unpredictable style of governance and frequent policy changes, especially on tariffs, which create uncertainty in the market, leading to a natural discount on the dollar's value, reported ANI.
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Mounting Debt and Post-Covid Strains
However, the main reason, as per Jefferies, is the worsening financial condition of the United States following the Covid-19 pandemic, as per the report.
The bank also highlighted that the
Federal Reserve
's generous policies have also caused more challenges, according to ANI. Jefferies pointed out that it might lead to a rise in financial repression, potentially leading to yield curve control and even exchange controls in the future, as per ANI.
While, the increasing gap in savings and the US' rising debt levels are also strong indications that the dollar may continue to weaken in the long run, according to the report.
FAQs
Why does Jefferies say the US dollar is weakening?
Because of rising US debt, political uncertainty, and post-Covid-19 financial strains.
Will the US markets crash?
No. Jefferies doesn't predict a crash but sees the US dollar losing value over time.
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