Troubles Ahead for the Dollar, Warns Wells Fargo’s MD

By: Gannicus Oliver
Gannicus Oliver
Gannicus Oliver is an author, consultant, digital economy enthusiast and investor. He boasts over three years of bonds, real… read more.
on Aug 7, 2020
  • The dollar demise may intensify. Interestingly, the US currency decline looks different from a collapse
  • As per the prediction of Michael Schumacher, Fed is more likely to maintain current bond purchases level.
  • Experts are now looking suspisious about foreign investors hurrying in to buy U.S. assets.

According to Michael Schumacher, Managing Director of the leading American multinational financial services firm Wells Fargo, the dollar will lose its value further. Whereas, he predicts bond will strengthen.

Schumacher blames the most recent decision by the Federal Reserve on interest rates alongside its dovish stand for the weakening trend of the dollar.

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Wells Fargo’s MD refers to the fiscal stimulus and massive monetary outlined to mitigate the COVID-19 pandemic influence on the U.S. economy as the primary driver.

Schumacher said,

“The dollar could conceivably get a little bit of a bounce”

He further added,

“But if you look for, let’s say, a trade for the next four to five months, we think it’s dollar weakness.”

The dollar index stands at its lowest level in two years, since June 2018. Its demise has become a regular topic on CNBC’s multimedia financial news program. Not only on Trading Nation, but experts also keep discussing it on every financial channel.

In June this year, Stephen Roach, former Morgan Stanley Asia chairman, warned the dollar could spark inflation after falling by 35% over the next couple of years.

Though, Managing Director of the Wells Fargo suspects the backdrop will cause more slides in the yield of the standard 10-year Treasury Note. Schumacher sticks by his base point that it will break out.

Fed to maintain bond purchases level

According to Schumacher, the Fed will keep purchasing bonds at the same level it currently does. Wells Fargo’s MD draws attention to the importance of more local buyers for the yields to remain low.

Schumacher is skeptical about foreign investors rushing in to purchase U.S. assets while the dollar keeps weakening. 

Can investors benefit from the dollar demise?

In my personal opinion, while the scenario of the falling dollar is unfortunate in many ways, investors can have their revenge, so to speak.

For example, if you are a US investor, prefer investing in the stocks of US-based multinational firms, which earn a meaningful portion of their revenues overseas.

And of course, placing your bet on bonds looks like an appropriate thing given the current circumstances.

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