Investment guru Jeffrey Gundlach warns that investors are ignoring the likelihood that the “fiscal explosion” sparked by the coronavirus will ultimately lead to a much weaker dollar.
The CEO of DoubleLine Capital recently told Yahoo Finance that a dollar crash — if and when it happens — could easily cause the U.S.’ financial dominance to “fade away.”
While it’s not imminent, “there’s a risk that the dollar starts to reverse into a significant downtrend because the value of the dollar versus other currencies is greatly affected by the growth in our budget and trade deficit," Gundlach told Yahoo Finance.
Although every major economy is “doing strange policies” to thwart the virus’ effect on their economy, Gundlach insisted the U.S. balance sheet is worse, Yahoo Finance explained.
The world’s largest economy “dwarfs the policies, particularly what the Federal Reserve is doing, versus the European Central Bank (ECB) and other central banks. What we're doing dwarfs who they've been up to. We're really carrying the burden here in terms of fiscal explosion," Gundlach said.
“The dominance of the U.S. markets will start to fade away.”
To be sure, the world’s biggest currency banks see the dollar edging lower toward year-end, a consensus that may only hold if rising coronavirus infections don’t hamper the global growth rebound.
Among the banks that handle the brunt of the $6.6 trillion in daily foreign-exchange turnover, the median forecast is for the greenback to fall nearly 2% against the euro and 3% against the yen in the next six months, Bloomberg reported.
Key to that view is the gradual unwinding of the haven demand that fueled a dollar surge in March as investors sought safety with the world’s economy grinding to a halt.
For the most part, the 11 banks surveyed are only calling for modest shifts in exchange rates, a stance that may come in part from the complexity of the period ahead.
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