Pacific Investment Management Company (PIMCO) expects the U.S. dollar “to lose its appeal as the last safe haven currency.” The $1.74 trillion asset manager added that the U.S. dollar is “likely to decline further in 2023 due to lower inflation, lower recession risk, and easing of other shocks.”
PIMCO strategists warn that the U.S. dollar
Pacific Investment Management Company (PIMCO) predicts a significant downtrend in the U.S. dollar this year; PIMCO has $1.74 trillion in assets under management as of December 31, 2022.
PIMCO Executive Vice President and Global Strategist Gene Frieda said in a blog post last week.
We expect the U.S. dollar will continue to lose its appeal as the last safe haven currency.
“As inflation and monetary policy volatility decline, we believe the risk premium will fall. New shocks are clearly a risk, but we believe the risk premium for the US dollar (and cross-asset volatility) remains large,” Frieda added.
“While rising yields clearly worked in favor of the dollar last year, a forward-looking view must also consider how the dollar was buoyed by the shocks of 2022,” the strategist explained, “and how much it could weaken in 2023.” Some of those shocks, he noted, include the Russia-Ukraine war, soaring energy prices, inflation, etc.
and the executive elaborated.
PIMCO believes that the dollar, which has fallen since reaching a 20-year peak last September, is likely to fall further in 2023 as inflation declines, recession risk decreases, and other shocks ease.
Frieda believes that in the coming months, “the dollar’s yield advantage over other developed economies will shrink.” Given the fast pace of cumulative rate hikes along the way, the yield advantage of the U.S. dollar is likely to diminish in the early stages of the rate cut cycle, even if the dollar maintains relatively high yields.”
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