The USD is poised to depreciate
The key determinants of currency valuations point to the weakening of the USD in the near future.
Concerns about the US dollar (USD) have grown in recent weeks, centred on two issues. The first is the USD’s value: Is the USD likely to depreciate significantly? The more fundamental issue is the USD’s role: Can it continue to be the world’s dominant reserve currency? If not, what are the consequences?
We believe that the USD is on the brink of significant changes. First, we expect the USD to weaken by a further 10%, beyond the 10% fall already seen since its recent peak in October 2024. This is sizeable but not earth-shattering since the currency has seen similar swings in value over the past 50 years. More consequential is our second expectation — that the USD’s global reserve currency role will gradually diminish. Over the next decade or so, we expect the USD to share its role with the euro and the yuan. There will also be incentives for innovations to create substitutes for the USD’s role as a reserve currency.
