When this OpEd was published we disagreed with the extent of the rout he was calling for and put it in the link-vault to test Mr. Roach's thinking. Here is the U.S. Dollar Index over the last year:
And here is what he said at MarketWatch June 23, 2020:
Stephen Roach, a Yale University senior fellow and former Morgan Stanley Asia chairman, tells MarketWatch that his forecast for a sharp deterioration of the U.S. dollar could be a very near-term phenomenon, not an event that looms off in the distance.
“I do think it’s something that happens sooner rather than later,” the economist told MarketWatch during a Monday-afternoon interview.
His comments come as the financial expert has been warning for weeks of an epic downturn of the buck that could signal the end of the hegemony of the greenback as a reserve currency — an event that would ripple through global financial markets.
“In a COVID era everything unfolds at warp speed,” Roach told MarketWatch on Monday. He pointed to the contraction of the U.S. economy from an employment rate that was hovering around a 50-year low at around 3.5% near the start of 2020 to one that shows some 49 million people unemployed since the pandemic took hold in March. He also noted the rapid and unprecedented fiscal and monetary response that has ballooned the Federal Reserve’s balance sheet to more than $7.2 trillion from $4 trillion at the start of the year as examples of the celerity at which the currency market could change.
Roach is calling for the dollar to soon decline 35% against its major rivals, citing increases in the nation’s deficit and dwindling savings.
“This massive shift to fiscal stimulus is going to blow out the national savings rates and the current-account deficit,” he told MarketWatch, reiterating comments he has previously made in interviews and in an op-ed that published by Bloomberg News on June 14.
Last week, the U.S. current-account deficit, a measure of the nation’s debt to other countries, slipped 0.1% in the first quarter, falling to $104.2 billion from a revised $104.3 billion in the 2019 fourth quarter. The current account reveals if a country is a net lender or debtor....
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Although the dollar declined almost immediately after Mr. Roach's pronouncement (damn good timing) the magnitude of the drop over the last year amounts to 7.2% versus his 35% forecast.
And the reason for this walk down Memory Lane?
The structural issues he raised are still out there and these big confabs like the G-7 or the Kansas City Fed get-together in Jackson Hole in a couple months have an odd history of presaging major moves.
DXY 90.51 last with Mr. Roach's target from the June 2020 index value of 97.50 being in the 63 -64 range
Which would be a 30% drop from here.
In fairness, earlier this year we were looking for a "rip your face off" dollar rally in the first quarter. I'm not sure the 3.3% up-move in March qualifies.
FX is hard.
