Can the Dollar crash?

Can the Dollar crash?

Recent uncertainties have affected the Dollar

Although the markets seem to dismiss the current economic situation by reacting in opposition to what's happening or not to respond at all, the overall picture is not looking good. All the events and decisions indicate that the US Dollar may lose its crown as the king of currencies.

The latest report from Goldman Sachs showed the concerns over the US inflation. The Goldman analysts are merely putting into words what investors have been thinking for the past months –inflation triggered by money-printing that could last for years. From Goldman’s point of view, the US growing debt (which currently is more than 80% of the country’s GDP) might boost inflation. Moreover, the US faces a deep recession, and the GDP contracting by 32.9% in the past quarter is not bringing hope. And, as a matter of precaution, investors turned to Gold. Driven by investors' appetite for a safe asset, Gold reached new highs in the past week - $1,980 per ounce.

The American bank revised its forecast for the Gold price to $2,300 per ounce from a previous $2,000 an ounce, as it believes that the interest rates will be even lower than now, and Gold will be in demand. Investing in the safe-haven asset could lead to further Dollar depreciation. If the Dollar falls, other areas can plummet along the way, such as global reserves, banking and financial systems, etc.

As said before, the current events suggest that the US Dollar could weaken from within as the United States economy becomes more fragile, and a mix between the uncertainty of the COVID-19 pandemic and the unknown state of the US presidential election could represent a "crash risk." According to UBS, the risk comes from developed-world currencies, such as the Euro, Swiss Franc, and Japanese Yen. In July, the Dollar Index fell by more than 4%, marking the most significant drop since September 2010.

To better understand the relationship between the US Dollar and Gold, take a look here! If you want to expand your knowledge about the US Dollar, click here!

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Sources: Bloomberg.com, scmp.com, marketwatch.com

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