The U.S. dollar has been in quick decline over the past several months, one of several indicators raising fears that the economy could be headed for a recession.
Since a recent peak in early November, the greenback has fallen by 7.4%, according to the nominal broad U.S. dollar index. The falling dollar comes after a yearlong period of the Federal Reserve hiking interest rates in response to the country’s rip-roaring inflation.And there are several reasons behind the decline.
While the Fed may be putting its foot on the brakes soon, other central banks, such as the European Central Bank, are continuing to raise interest rates. Another factor at play is the banking crisis that began with the collapse of Silicon Valley Bank last month. SVB’s dramatic failure then triggered the collapse of Signature Bank and created fears that other regional banks could end up failing due to runs on the banks. While there haven’t been any major U.S. bank failures since, the situation is still fluid and is causing some angst in the currencies market.And finally, there is the looming issue of the U.S. debt ceiling.
“So people don’t want to be stuck with dollars, so they’re moving out of dollars for that reason,” Lachman said. Former Treasury Secretary Lawrence Summers this week pushed back on the idea that the U.S. dollar is losing its global dominance. He used China to make his point in an interview with Bloomberg.
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