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TREND 2: Secular decline of the US dollar

What do the 2020s have in store for investors? Big-picture thinker David Dowsett sets out the ten trends he foresees emerging over the next decade, along with their investment implications.

TREND 2: Secular decline of the US dollar

Despite many predictions to the contrary, the 2010s have been an exceptionally strong decade for the US dollar. I believe the decade will also prove to be its apotheosis.

The US has abused its exorbitant privilege for long enough. Total IOUs in the US economy are over 1000% of GDP. In 2019, the fiscal deficit is running at over USD1trillion for the year – close to 5% of GDP.

Despite President Trump’s initiatives on trade, the current account deficit is widening again to over 2.5% of GDP. Rising debt and deficit levels against a backdrop of continued policy-making gridlock seem likely.

At the same time, the initiatives of other countries to reduce their US dollar vulnerability are well underway.

Sanctions have proved an effective financial weapon for the US over the past decade, but have also incentivised countries to look for alternatives to US dollar financing.

The Dollar Index stood at 77.86 on 1 January 2010 and is 98.4 today (as at 13 November).

I believe this trend will reverse over the next decade as alternative reserve currencies begin to emerge. These could be digital (Bitcoin or Libra variations), as well as the currencies of other nations.

After a decade of dollar-denominated asset outperformance, investors should consider beginning to reposition.

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