Market veteran warns of impending currency avalanche with U.S. Dollar at risk after a week of global financial shockwaves
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A market veteran is sounding dire warnings about the US dollar's susceptibility after a week of dramatic swings in the world's currency markets, as per a report.Stephen Jen, Eurizon SLJ Capital CEO and co-CIO, has long been issuing warnings about the threat of an abrupt and disorderly weakening of the dollar, which he compared to an "avalanche," as per a Market Watch report.Jen's worst nightmare seems to be coming true. In a recent report, Jen and co-author Joana Freire noted the dramatic surge in the Taiwan dollar and other Asian currencies as one of the potential indicators of a wider sell-off in the dollar, according to Market Watch.They wrote 'We continue to believe the risks of investors being blind-sided by such a non-linear sell-off in the dollar continue to rise. The sharp sell-off in [the Taiwan dollar] last week is such an example. There will be others, we predict,' quoted Market Watch.Jen and Freire also pointed out that the changing geopolitical trends and interest-rate spreads may lead US trading partners to start dumping the huge stockpiles of dollar and dollar-denominated assets they have amassed since the onset of the COVID-19 pandemic, reported Market Watch.According to their calculations, the amount of at-risk dollars held by China, Taiwan, Malaysia, Vietnam and other major Asian exporters is about $2.5 trillion, a tally that has recently been rising by about $500 billion a year, reported Market Watch.The worry is aggravated by the fact that the dollar has been overvalued for a while now, and Jen cautions that if the dollar keeps depreciating, foreign US asset holders can liquidate and withdraw their funds, as per the report. From the start of this year, the US Dollar Index, which monitors the value of the dollar relative to a basket of major currencies, has already dropped over 8%, touching a three-year low, reported Market Watch.Experts estimated that countries like China and Taiwan hold about $2.5 trillion in potentially at-risk US dollar assets.The US Dollar Index is down more than 8% this year and hit a three-year low recently.
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