The U.S. dollar’s value has become a topic of concern among financial experts. Mike Dolan, a financial analyst, warns investors to pay attention to the risks of a sudden drop in the dollar’s foreign exchange rate. Dolan’s warning comes as the Euro reaches its highest point since late 2021.
Safe-haven currencies like the Swiss franc and Japanese yen have also seen significant gains. Dolan says the market should focus on the immediate risks of a sharp decline in the dollar. This could cause volatility across global financial markets.
He says this is different from the longer-term trend of ‘de-dollarization’, where countries slowly reduce their use of the U.S. dollar in international trade and finance. Recent economic news and policy discussions provide context for Dolan’s analysis. There is talk that Paul Bessent could be the next Federal Reserve Chair after Jerome Powell.
Investor Paul Tudor Jones wants an ‘uber dovish’ Fed Chair to support economic growth. Citi recently said a potential Federal Reserve rate cut might be delayed until September. This follows the latest jobs data.
The delay could affect currency markets and interest rates around the world. Dolan’s insights highlight the need to carefully watch the complexities of global currency markets. Investors should closely monitor the dollar’s movements and the broader economic policies that could impact financial stability.
As the US economy faces stagflation due to higher tariffs, India and other countries remain outliers. This is according to Claudio Irigoyen, managing director and head of global economics research at Bank of America Global Research. Irigoyen expects the US Federal Reserve will not cut rates as it deals with lower growth and higher inflation.
Dollar’s potential abrupt decline risk
Other central banks are expected to cut rates in response to lower growth and inflation. The market initially expected five rate cuts from the US Fed this year but has since adjusted expectations to two.
“We call it a slowdown but not a recession for the US. Those are our two significant out-of-consensus calls. The Fed will not cut rates, and the US economy will slow down but not enter a recession,” said Irigoyen.
Bank of America has lowered the global growth estimate for 2025 to 2.8% from an earlier 3.1%. India’s GDP is expected to grow by 6.3%, while Europe’s is expected to see just a 0.9% increase. Irigoyen noted that India’s central bank will likely pause after a surprise 50-basis-point rate cut and a 100-basis-point reduction in the cash reserve ratio (CRR) last week.
“We have been advocating for RBI to cut rates by 100bps for some time, and now that this trajectory is achieved, we believe RBI can wait to see the transmission effects, especially since they have shifted their policy stance to neutral,” he said. He added, “Given RBI’s pro-growth stance, there is a potential for further easing, but based on current growth projections, they will likely wait to see if GDP growth deteriorates before deciding on additional measures.”
Although positive about India’s growth, Irigoyen emphasized the need for more infrastructure to attract supply chains. “India could become a compelling story due to its relative geopolitical neutrality and potential to attract FDI and the relocation of supply chains.
However, this will take time and requires significant infrastructure development,” he stated. Bank of America also expects the dollar to continue weakening, but not sharply. “We don’t anticipate any short-term risk to the dollar losing its reserve currency status,” Irigoyen remarked.
Meanwhile, global portfolios are expected to shift away from US assets into Europe and emerging markets. “As the geopolitical landscape evolves, some countries are less inclined to buy US treasuries,” he noted. “Central banks are shifting from US treasuries to gold.
While demand declines, the supply of treasuries is increasing due to the deficit.”
Currently, attention is on the tax bill expected to pass in the US Congress on July 4. The legislation aims to cut taxes by $3.7 trillion while increasing deficits by $2.4 trillion over the next decade.
