• Pacific Investment Management Company (PIMCO) expects the U.S. dollar to „continue to lose its appeal as the safe-haven currency of last resort“ in 2023.
• PIMCO Strategist Gene Frieda warns that the USD’s yield advantage is likely to fall in the early stages of a rate-cutting cycle despite its relatively high yield.
• Frieda believes that risk premiums will decline with inflation and monetary policy volatility, but new shocks remain a risk.
PIMCO Warns About US Dollar
Pacific Investment Management Company (PIMCO) has predicted a significant downtrend for the U.S. dollar this year, citing its expected loss of appeal as a safe-haven currency of last resort. With $1.74 trillion in assets under management as of Dec. 31, 2022, PIMCO Strategist Gene Frieda warned in a blog post last week that the USD’s yield advantage is likely to fall in the early stages of a rate-cutting cycle despite its relatively high yield.
Inflation and Monetary Policy Volatility
Frieda believes that risk premiums will decline with inflation and monetary policy volatility, but new shocks remain a risk: “We expect the USD will continue to lose its appeal as the safe-haven currency of last resort,“ he said.“ While higher yields clearly worked in the dollar’s favor last year, any forward-looking view must also take into account how the dollar was buoyed by shocks of 2022 and how they may abate in 2023.“
Decline of US Dollar
PIMCO expects that with these factors taken into consideration, „the dollar … is likely to fall further [in 2023].“ The executive noted that some potential risks include Russia-Ukraine war, spike in energy prices and inflation; however, even if these risks are avoided or reduced significantly over time, „the extent to which they may abate in 2023“ could still result in a further decline for the US Dollar compared to other currencies like Euro or British Pound Sterling.
Future Outlook for US Dollar
As such, PIMCO believes that „the dollar’s yield advantage versus other developed economies will narrow“ over time due to fluctuating economic conditions and central bank policies around world – all potentially impacting on exchange rates between different currencies including US Dollar relative performance against them all over time. As such it seems increasingly likely according to PIMCO’s analysis that US Dollar may not maintain it’s status quo position as ‘safe haven currency’ but rather depreciate further against other major global currencies during coming months/year ahead depending on various geopolitical/economic factors at play during this period too!
Conclusion
In conclusion it appears clear from PIMCO’s recent research/analysis on US Dollar outlook for 2023-24 period -that there seems increasing likelihood of USD losing out much more ground/value compared to other major currencies including Euro & British Pound Sterling etc – all dependent upon geopolitics & economic conditions prevailing during this upcoming period too!