Currencies

What would it take to see a sustained weakness in the dollar?

About a month after "Liberation Day," the US dollar has shown signs of stabilisation, though it continues to soften against most developed and emerging markets currencies.

 

While the real-time narrative of the dollar's performance is not immediately apparent, we can examine key drivers to determine if the currency is undergoing a prolonged period of weakness.

 

The dollar has been overvalued for almost a decade on fundamental valuation models, but it is too soon to conclude we are now in a period of weakness. We would need to see a sharp drop in US growth (or recession) and/or a significant increase in growth in the rest of the world for this to take place.

 

Meanwhile, although several of the foundational elements that have contributed to the dollar’s reserve currency status over time have been compromised, they still remain fundamentally sound, both in absolute terms and compared to other viable options.

 

While the dollar’s share in global reserve assets have declined over the past couple of decades, this has not been offset by increases in the shares of the other "big four" currencies — the euro, yen and pound.

 

One non-traditional reserve currency that has been increasing its market share is the Chinese renminbi, accounting for a quarter of the decline in the dollar's share. Although the renminbi is backed by the world's second-largest economy and provides access to extensive foreign exchange and financial markets, the country’s strict capital controls limit the yuan’s role in global finance.

 

The euro is often seen as another potential alternative to the dollar but there is a shortage of high-quality euro-denominated assets that international investors and central banks can utilise as a store of value, and there is no eurozone-wide "safe" government-backed asset available.

 

So, while we could see the dollar weaken further from current levels, we are unlikely to be at a major turning point of the dollar’s bull cycle. 

 

US dollar is still overvalued…..but less so than in 1985

USD over-/undervaluation

US dollar is still overvalued but less so than in 1985

Data from 1 March 1973 to 1 April 2025. Sources: Capital Strategy Research, U.S. Federal Reserve

jens-sondergaard-color-600x600

Jens Søndergaard is a currency analyst at Capital Group. He has 19 years of investment industry experience and has been with Capital Group for 12 years. Earlier in his career at Capital, he worked as an economist covering the Euro area and the UK. He holds a PhD in economics and a master’s degree in foreign service from Georgetown University. Jens is based in London.

過去の実績は将来の成果を保証するものではありません。指数は運用されているものではなく、指数に直接投資することはできません。投資の価値および投資収益は減少することも増加することもあり、当初投資額の一部または全部を失うことがあります。 本情報は投資、税務もしくはその他の助言の提供、または証券の売買の勧誘を意図するものではありません。
 
個人に帰属する記述は、その個人の出版日現在の意見を述べたものであり、必ずしもキャピタル・グループまたはその関連会社の意見を反映したものではありません。特に明記がない限り、すべての情報は記載された日付現在のものです。一部の情報は第三者から取得したものであり、そのため、かかる情報の信頼性については保証いたしません。
 
キャピタル・グループは3つの投資グループを通してエクイティ資産を運用します。運用と議決権行使は、その3グループが独立して行います。債券投資のプロフェッショナルは、キャピタル全体で債券の調査と投資運用を行っていますが、エクイティの特徴を持つ証券については、3つのエクイティ投資グループのいずれかを代表して活動しています。