US dollar continues to lose appeal as safe-haven currency of last resort, says Strategist – Economics
Pacific Investment Management Company (PIMCO) expects the US dollar to “continue to lose its appeal as a last safe haven.” The $1.74 trillion asset management firm added that the USD “is likely to continue falling in 2023 if the inflation falls, recession risks diminish and other shocks abate”.
PIMCO strategist warns on USD
The Pacific Investment Management Company (PIMCO) has forecast a significant downtrend for the US dollar this year. PIMCO had $1.74 trillion in assets under management as of December 31, 2022.
Gene Frieda, executive vice president and global strategist at PIMCO, said in a blog post last week:
We expect the USD to continue to lose its appeal as a last safe haven.
“We believe that with inflation – and monetary policy volatility – risk premia will come down. Fresh shocks are clearly a risk, but the USD risk premium (and cross-asset volatility) remains significant in our view,” Frieda added.
“While higher yields have clearly worked in the dollar’s favor over the past year, any forward-looking view must also consider how the dollar was carried by the shocks of 2022,” the strategist explained, and “how far they may ease in 2023.” He noted, that some of the shocks were the war between Russia and Ukraine, the rise in energy prices and inflation.
The executive explained:
PIMCO believes the dollar, which has depreciated since hitting a 20-year high last September, is likely to fall further in 2023 as inflation falls, recession risks diminish and other shocks abate.
PIMCO believes that “the dollar’s yield advantage over other developed markets will diminish in the coming months,” Frieda said. “Given the faster pace of cumulative rate hikes on the way up, the USD yield advantage is likely to diminish in the early stages of a rate cut cycle, even if the dollar maintains its relatively high yield.”
Do you agree with the PIMCO strategist that the US dollar is losing its appeal as a last safe haven? Let us know in the comment section below.
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