Many people expected the US economy to improve in the near future. Looking at what is happening in the real world, that outlook seems rather unlikely. For the US Dollar to recover, it will take almost a miracle.
More US Dollar Weakness
Despite being the world’s reserve currency, there is not much good news for the US Dollar right now. The currency has proven to be rather weak overall, and shows no signs of improving its position in the near future either. A lot of pressure continues to mount on this currency, and there is no resolution on the horizon. Despite noting a strong bull cycle for some time now, a return to that situation seems incredibly unlikely.
Several factors currently affect the US Dollar and its market position. It is far from a safe haven asset, making it rather volatile under the current market circumstances. Continuing the nine-year bull run will be virtually impossible, especially with COVID-19 still remaining a problem. In fact, the greenback has shown plenty of weakness since March of 2020, and it seems unlikely that a future uptrend is on the agenda.
Losing more ground against other major currencies is far from ideal. The Euro, Pound Sterling, yen, and Yuan have all gained ground against the greenback. This makes one wonder what the future will hold. The US Dollar already lost 10% compared to March 2020, In fact, the dollar hit a two-year low this week, indicating the bearish trend is far from over at this point. It is not necessarily the end of the bull run either, but it is a very interesting situation regardless.
US Dollar Overvaluation is a Problem
There are also some concerns regarding the overvaluation of the US Dollar. According to the Bank of International Settlement,every USD should be valued 16% lower. That is lower compared to its current value, not the value of March 2020. Assuming that data is correct, the value of the greenback will undergo significant changes in the months to come. How long tis value will go compared to other currencies, is anyone’s guess.
Some analysts indicate the US Dollar has been overvalued for some time now. A correction was a matter of time, all things considered. This will give rise to safe haven assets, such as gold, silver, and cryptocurrencies. They are capable of retaining their value and even appreciate over time. The greenback, on the other hand, is subject to inflation courtesy of the Federal Reserve.
What About COVID-19?
Another pressing problem comes in the form of COVID-19. Overcoming a global pandemic will require a lot of time and effort. For the US economy, there is no real path to recovery as of yet. Domestic cases are still on the high end of the spectrum, and a vaccine is still years away. Keeping the record stimulus packages in place already, it is evident the road to recovery will be a long and windy one.
Approving further stimulus packages is still on the table as well. Whether they will be approved, will depend on US Congress. So far, there is no real interest in exploring this option.
There’s also no real sign of US growth. In fact, this metric recently shrank by over 31%. Ongoing factors may push this rate down even further. It is evident that the US economy was on borrowed time, with interest rates and bond yields now normalizing compared to the rest of the world. Normalizing the economies may be a good way to work toward a recovery of sorts.