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The US Dollar Selloff: Justified, But Not Sustainable

The US Dollar Selloff: Justified, But Not Sustainable

The US dollar has been on a downward trend in recent weeks, hitting a 15-month low against the euro on Friday. This selloff has been driven by a number of factors, including the Federal Reserve’s hawkish stance on interest rates, concerns about a global economic slowdown, and the war in Ukraine.

However, some analysts believe that the dollar’s weakness may not be sustainable in the long term. Bank of America’s currency strategists Claudio Piron and Athanasios Vamvakidis argue that the recent falls in the dollar are “justified,” but that the current bout of weakness “may not be sustained beyond the short term.”

They point out that the US economy is still relatively strong, and that the Federal Reserve is likely to continue to raise interest rates in the coming months. This should help to support the dollar in the long run.

However, they also acknowledge that there are a number of risks to the US economy, including the war in Ukraine, rising inflation, and the potential for a global recession. If any of these risks materialize, it could lead to a further selloff in the dollar.

Overall, it is too early to say whether the recent dollar selloff is a sign of things to come. However, it is clear that the dollar’s strength is not guaranteed in the long term.

Here are some additional factors that could affect the dollar’s value in the coming months:

  • The pace of economic growth in the US and other major economies.
  • The direction of interest rates in the US and other major economies.
  • The outcome of the war in Ukraine.
  • The level of inflation.
  • The strength of the US stock market.

It will be important to monitor these factors closely in order to get a better sense of the dollar’s future direction.