The decline of the dollar could intensify. Interestingly, the decline of the US currency looks different from a collapse
As predicted by Michael Schumacher, the Fed is more likely to maintain the current level of bond purchases.
Experts are now suspicious of foreign investors rushing to buy US assets.
According to Michael Schumacher, CEO of the leading American multinational financial services company Wells Fargo, the dollar will continue to depreciate. On the other hand, he predicts a strengthening of bonds.
Schumacher blames the Federal Reserve’s recent interest rate decision, in addition to its deafness, on the weakening trend of the dollar.
Wells Fargos MD refers to the fiscal and massive monetary policy impulses outlined to contain the pandemic impact of COVID-19 on the U.S. economy as the primary driving force.
“It is conceivable that the dollar might gain a little momentum”
He added further,
“But if you’re looking for, say, a trade for the next four to five months, we think it’s the dollar weakness.
The dollar index is at its lowest level for two years, since June 2018, and its decline has become a regular topic on CNBC’s multimedia financial news program. Not only on Trading Nation, but also on all financial channels, experts discuss it again and again.
In June this year, Stephen Roach, former chairman of Morgan Stanley Asia, warned that the dollar could trigger inflation after falling 35% in the next few years.
However, the managing director of Wells Fargo suspects that the background will cause further declines in the yield on the 10-year Standard Treasury Note. Schumacher maintains his starting point that it will break out.
Fed wants to maintain level of bond purchases
According to Schumacher, the Fed will continue to buy bonds at the same level as before. Wells Fargo’s MD points out the importance of more local buyers to keep yields low.
Schumacher is skeptical about foreign investors rushing to buy U.S. assets while the dollar continues to weaken.
Can investors benefit from the decline of the dollar?
In my personal opinion, the falling dollar scenario is unfortunate in many ways, but investors can take revenge, so to speak.
For example, if you are a U.S. investor, you prefer to invest in the shares of U.S.-based multinational companies that generate a significant portion of their revenues abroad.
And, of course, in the current circumstances, it seems appropriate to bet on bonds.