IMF Managing Director Kristalina Georgieva
on Monday, Feb. 9, warned markets to avoid overreacting on the back of
the dollar’s recent sluggishness, arguing that she doesn’t foresee a
global shakeup in its role “anytime soon,” per Seeking Alpha.
That reassurance comes at a unique point for the greenback.
The U.S. dollar index has fallen sharply compared to a year ago, and fiscal worries are back in the picture. Most recently, there’s chatter that China’s looking to trim its Treasury exposure, stoking the “dollar doomsday” narrative.
So
all things considered, it isn’t too hard to see why investors are
asking whether something more structural is breaking behind the scenes.
That sentiment aligns with Ernst & Young Chief Economist Gregory Daco’s take, which I covered. Daco warned that the strong U.S. economy story is far narrower than it appears.
It’s
the paradox of having strong growth, but underlying weakness across
different sectors and across different stratas of the economy.
That’s exactly the setup that feeds fresh worries about the U.S. dollar, with growth concentrated and fragile, leaving it vulnerable to a sudden shift in investor sentiment.
What
I mean by the monetary order is that fiat currencies and debt as a
store of wealth is not being held by central banks in the same way.
However,
the IMF believes that the recent weakness cannot affect the U.S.
dollar’s long-term dominance, deeply entrenched in capital markets,
backed by unmatched liquidity and a hefty supply of investable assets....
