U.S. Dollar – Grave Concerns Remain

We continue to see risks ahead for the U.S. economy, and in particular, the U.S. dollar. Significant global imbalances remain – indeed; the recent global financial crisis has served to exaggerate many of these imbalances. Of grave concern is the unsustainable Federal budget deficit, which may have morphed out of control, with no signs of government constraint over the near-term. The U.S. current account deficit remains at a high level, and will likely weigh on the dollar for years to come. Add to this the inflationary pressures brought about by the Federal Reserve Bank’s (Fed) substantial balance sheet expansion – the balance sheet has grown nearly threefold since the beginning of the crisis – which may cause a further devaluation of the U.S. dollar. Despite political rhetoric to the contrary, in our assessment, policies are clearly working against a strong U.S. dollar. Moreover, we are yet to see evidence of a strong, sustainable economic turnaround in the U.S. Read more