(MENAFN- Asia Times) Fevered speculation of the dollar's demise has gained intense currency throughout 2023. Yet the world's reserve currency and the market bulls driving it ever higher haven't gotten the memo.
This disconnect is sure to dominate discussions at this weekend's Group of 20 summit in New Delhi, Indian.
Officially, the host, Indian Prime Minister Narendra Modi, wants the
September 9-10
confab to foon cooperation and showcasing India's rising clout in global trade and finance.
Yet the sideline of these events is where the real action happens. And a major source of discord is why the dollar is climbing for an eighth straight week, the longest such streak since 2005.
The plot thickens when you consider that theFederal Reserve is wrapping up its tightening cycle, Washington's dangerfiscal trajectory continues apace and many G20 members are determined to sideline the dollar in global market circles.
“Many of the dollar-supportive factors of 2022 have abated,” says strategist Dwyfor Evans at State Street Global Markets.
He notes that other top central banks“are playing catch-up on rates.” And if China's Covid re-opening trade reasserts itself, giving global demand a lift,“then cautisafe haven buying is on the back foot.”
Others argue that the surprising stability of theservice sector, despite still-high inflation and global headwinds, continues to offset trade weakness and support dollar buying.
“This resilience, whether looking at jobs growth, sticky inflation or consumer spending, is predominantly driven by services,” says strategist Adarsh Sinha at Bank of America. While the bank remains bullish, Sinha says,“In our view, a meaningful slowdown in the service sector is necessary if not sufficient for sustaineddollar depreciation.”
The more capital the dollar lures out of the developing world, the less there is to finance growth, keep bond yields stable and help private sector companies innovate, disrupt and create new wealth.
Past periods of extreme dollar strength – including the 1997-98 Asian financial crisis – posed existential financial risks to emerging markets. Yet the writing is seemingly on the proverbial wall, notes Natasha Kaneva, head of global commodities strategy at JPMorgan.
“Thedollar, one of the key drivers of global oil prices, appears to be losing its once powerful influence,” Kaneva says.
The bank's research corroborates views that dollar strength and oil prices are steadily weakening. This, of course, is partly by design, with oil increasingly being transacted in non-dollar currencies.
Case in point: G20 member Saudi Arabia, which along with China has ambitidesigns for a post-dollar financial system.
Between 2005 and 2013, JPMorgan says, a 1% increase in the trade-weighted dollar would lower the price of international benchmark Brent crude oil by roughly 3%.
Dollar dominance in oil trading may be coming to an end. Image: Twitter
Between 2014 and 2022, an equivalent dollar gain only resulted in a 0.2% change in Brent crude prices.
Kaneva's JPMorgan colleague, Jahangir Aziz, head of emerging market research, notes that“overall, we find that the importance of the dollar has declined significantly from 2014 to 2022.” It's“hard to ignore” this downshift, Aziz says.