US Dollar to Keep Losing Its Appeal as Safe-Haven Currency of Last Resort, Says Strategist

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Pacific Investment Management Company (PIMCO) expects the U.S. dollar to “continue to lose its appeal as the safe-haven currency of last resort.” The $1.74 trillion asset management firm added that the USD “is likely to fall further in 2023 as inflation falls, recession risks decline, and other shocks abate.”

PIMCO Strategist Warns About USD

Pacific Investment Management Company (PIMCO) has predicted a significant downtrend for the U.S. dollar this year. PIMCO had $1.74 trillion in assets under management as of Dec. 31, 2022.

Gene Frieda, an executive vice president and global strategist at PIMCO, said in a blog post last week:

We expect the USD will continue to lose its appeal as the safe-haven currency of last resort.

“We believe risk premiums will decline as inflation — and monetary policy volatility decline. New shocks are clearly a risk, but the risk premium in the USD (and cross-asset volatility) remains substantial, in our view,” Frieda added.

“While higher yields clearly worked in the dollar’s favor last year, any forward-looking view must also take into account how the dollar was buoyed by the shocks of 2022,” the strategist explained, and “the extent to which they may abate in 2023.” He noted that some of the shocks were the Russia-Ukraine war, the spike in energy prices, and inflation.

The executive detailed:

PIMCO believes the dollar, which has depreciated since hitting a 20-year peak last September, is likely to fall further in 2023 as inflation falls, recession risks decline, and other shocks abate.

PIMCO believes that “the dollar’s yield advantage versus other developed economies will narrow” over the coming months, Frieda said. “Given the faster pace of cumulative rate hikes on the way up, the USD’s yield advantage is likely to fall in the early stages of a rate-cutting cycle, even if the dollar sustains its relatively high yield.”

Do you agree with the PIMCO strategist about the U.S. dollar losing its appeal as a safe-haven currency of last resort? Let us know in the comments section below.