US: Could the dollar collapse? - Natixis

According to Patrick Artus, Research Analyst at Natixis, the dollar’s slow decline against all currencies could accelerate and its exchange rate can collapse.

Key Quotes

“The following factors point in this direction:

a)    The US external deficit, which is the usual medium-term determinant of the dollar’s exchange rate;

 b)    The uncertainty over growth and economic policies in the United States, while the growth outlook is improving in emerging countries, China and the euro zone, which could divert capital from the United States and is giving rise to expectations of a not so restrictive US monetary policy;

 c)    The fact that until the recent period, the financial markets believed the dollar would appreciate; they could therefore reverse their positions.”

“In support of the dollar, however, is its role as a reserve currency, especially at a time when global foreign-exchange reserves are beginning to rise again. There are also question marks over a possible return of political risk in the euro zone (Italy).”

“The most likely scenario is therefore probably one in which the dollar falls but does not collapse.”