No reason to fear a dollar dive says CIBC economist

Investing.com -- The U.S. dollar has recently staged a partial recovery from its previous lows, yet the trade-weighted DXY index remains down approximately 9% over the past year. Despite this slide, CIBC economist Avery Shenfeld suggests that the narrative of a currency in free fall is largely overstated by market speculators.

"US Google searches for ’dollar debasement’ remain elevated, and there’s still a degree of market chatter," Shenfeld noted in a recent CIBC report. He argues that if a true crisis were unfolding, the panic would have already spread from gold markets into a visible sell-off of U.S. Treasuries.

The traditional inverse relationship between bullion and the greenback appears to have fractured in the wake of the pandemic. Gold prices rallied aggressively throughout 2024 even as the dollar climbed toward a long-term peak, indicating that current metal prices are not a direct proxy for currency health.

"The facts, however boring they might seem, suggest otherwise, and point to no reason to fear dire economic or financial market consequences," Shenfeld explained. Current yields in the bond market do not reflect the type of exit from dollar-denominated paper that would accompany a genuine debasement.

Monetary policy remains a stabilizing force as the Federal Reserve appears content to wait for clearer signs of economic softening before considering further easing. While political rhetoric occasionally favors a weaker currency for trade benefits, the broader FOMC committee is expected by CIBC to prioritize economic fundamentals over political pressure.

Ultimately, the projected decline of the dollar is viewed by CIBC as a standard mean reversion following an extended period of overvaluation. While investors may continue to hold non-dollar assets for diversification, the case for a catastrophic windfall driven by dollar debasement remains unsupported by the data, Shenfeld concluded.

You May Also Be Interested In

• Chevron reaches deal for two fields in Venezuela's Orinoco belt
• GitLab Inc (GTLB) PT Raised to $55 at Rosenblatt, 'We remain buyers of the stock'
• Dell (DELL) PT Raised to $499 at Morgan Stanley