The Decline of the Mighty Dollar: Unveiling the Economic Shift

The US dollar is potentially on a long-term downward trend, driven by economic and political factors. Jefferies' report highlights the disparity between the US's share in the global index and its GDP contribution, along with Trump's policies and post-pandemic financial strains, signaling a weaker dollar outlook.

Jefferies, a leading financial analysis firm, has suggested that the US dollar may be entering a prolonged downtrend due to several intersecting economic and political influences. A recent report underscores that on December 24th last year, the United States achieved a record share of 67.2% in the MSCI All Country World Index, fueled by buoyant optimism around 'American exceptionalism.'

However, while this figure approached a breakout level on financial charts and has now officially done so, Jefferies clarified that it should not be interpreted as an impending collapse of the US stock market. The anomaly lies in the US controlling a disproportionately large segment of the index, as it constitutes only 26.4% of the global economy in nominal GDP and a mere 14.9% on purchasing power parity.

Further complicating matters, Jefferies notes that former President Donald Trump advocated for a weakened dollar, aligning with his tumultuous governance style that ushered in market uncertainties through erratic policy swings, especially concerning tariffs. Contributing to the dollar's devaluation is the deteriorating financial health of the US post-Covid, exacerbated by the Federal Reserve's expansive monetary policies. This, alongside rising national debt, hints at future financial repression, dissuading dollar reliance.

(With inputs from agencies.)