Well in the short term, less in the long run. This in a nutshell is the analysis on the US dollar provided by JP Morgan, which in any case evaluates it as a strategic asset to diversify its investment portfolio.
The start of the Fed tapering could coincide with a moderate strengthening phase of the dollar. At the end of 2022, the first rate hike could act as a further catalyst for a strengthening of the dollar. The Fed rate hike prospect and the general low rate environment globally continue to fuel flows to US dollar-backing Treasuries.
However, in the long term, the dollar could be affected by important events that will arrive by the end of the year, including the raising of the debt ceiling and the discussion in congress of President Biden’s new infrastructure plan of 3.5 trillion dollars. Even if the investment plan will not be fully approved, as we think, the scenario that opens up in the coming years is of a country that will be characterized by an increasing phase of debt. This brings to the fore the issue of twin debts which is reconciled with a long-term trend of the weak dollar.
With a view to diversification, holding a component in dollars can be strategic. The risks of an investment in dollars depend on the fact that the trends of currencies are always more changeable than those of the investment classes.