There’s room for a decline in the US dollar, but the AI ​​boom can stop it

I believe that much of Wall Street and in the White House, the decline of greenbacks has been a long time. Heading towards 2025, American currency was valuing more than 50% during the Great Money Crisis. jpmorgan private bankand the strength of the dollar helped us to become the stocks like the world’s vy hopes.

Now weak greenbacks seem to give the opportunity to catch up with foreign stocks. But still in the US Primary hub of AI revolutionfor now, at least for now, US assets could be ready against historical trends and quickly take the lead.

Still, President Donald Trump’s chaotic tariff developments may have guided us into a new era of the dollar. Earlier this month, there has been a 10% drop so far against the famous DXY index currency basket. This was the most sharp loss for the greenback in the first half of the year, on a Reuters basis since 1986, when the US and some allies reached an agreement known as the Plaza Accord, underestimating a very expensive amount.

And there was a slight recovery in that case Conflict Between Iran, Israel and the US alliance, investors are “not approaching their first escape since the escape.”Release dateEarly April. That is what is called “Selling America“Trade still has its feet, Bill Sterling, global strategist at GW & K Management, said luck last week.

“The scheme of things has plenty of space for the dollar to drop even further,” said Sterling, formerly chief international economist at Merrill Lynch.

As tariffs continue to weigh America’s growth outlook, US assets will become less attractive. And it doesn’t look like the dollar will be replaced like in the world Preparation currency Soon, it may no longer be possible to order the same amount of trust.

Over the past decades, Sterling said that foreigners have funded America’s explosive deficits by purchasing US assets. GOP’s “big and beautiful” Expense bill It appears there is no position to change national debt Trajectoryis included Regulations It is set to raise taxes on foreign capital from several major trading partners.

“At a time when the deficit to GDP ratio is 7% and foreign capital is needed to fund that deficit,” Sterling said.

In his view, Washington’s rapid policy changes prompted a much-anticipated revision to the overvalued dollar. He and many others point out that they will buy electricity parity, a framework that assumes exchange rates in the long run.

It’s popular The Economist’s Big Mac indexthere are many reasons why this concept often doesn’t unfold in the real world. Data from the International Monetary Fund said the dollar was overvalued by 105% on a purchased electricity basis last year, surpassing its previous peak in 1985 and 2002, Sterling wrote in a recent research note.

But such an imbalance cannot exist forever, he said, and the ball may be rolling now. According to Bank of America’s Monthly Fund Manager investigationUS dollar short circuits have become one of the most popular transactions in the world, but over 60% of respondents still say that greenbacks are overvalued.

“And once the trend was established, Sterling spoke about the currency market.

Will AI maintain “American exceptionalism”?

If the dollar continues to decline, it will have a major impact on the economy around the world and the stock portfolios of Americans.

Since the global financial crisis, US stocks have far surpassed the rest of the world. Foreigners responded by putting money into the US and now owns 18% of the US stock market. According to Torstens Rock, two Apollo Chief Economists.

However, these trends could be reversed if the weakness in the dollar pushes investors to allocate more money elsewhere. As Americans buy foreign stocks and see the decline in greenback, Sterling said their returns could be significantly boosted.

Meanwhile, Trump fuel trade tensions seem to force both Developed countries (Like Germany) Emerging economy He said the stock market tends to reward in order to focus on stimulating domestic demand (such as China).

He pointed out how the Japanese market responded. Plaza AccordThe yen rose dramatically against the dollar.

“It was considered to be a kind of hammer blow for the export industry,” he said. “However, the Japanese stock market was one of the most powerful markets in the world (in the 1980s) because it was so aggressively lowering interest rates.”

Comparisons with some of the Trump administration’s voices, including Vice President JD Vance and key economic advisers, may be timely Stephen Milanpreviously claiming weaker dollars to make US exports more competitive. Milan even spoke about the possibilities.Mar-a-lago Accord“Adjusting another devaluation of the greenback.

That type of trading may be unrealistic, but the currency market appears to be doing its own work. In the meantime, many foreign stock markets are more than just weathering tariff uncertainty.

For example, Hong Kong’s Hangsen index has grown by more than 20% this year, compared to its profit of nearly 3% to the S&P 500 as of Monday’s end. Meanwhile, the S&P Latin America 40 is quietly surged by 20%.

However, Sterling acknowledges a major warning against his debate about weakening the dollar. There is a lot of optimism (which he added, perhaps well placed) about AI trade, which many believe is still in its early stages. Regardless of what happens with US trade and economic policy, if American leaders in that space disappear anytime soon, that’s shocking.

This means investors need a lot of dollars and prevent the greenback from falling sharply.

“Maybe US exceptionalism will be the main story of the world economy for the next five years,” he said.

However, tech leadership does not always guarantee a good stock return, especially when the dollar is relatively weak. Between February 2002 and July 2011, the MSCI EAFE index, which covers large and intermediate companies in developed markets outside North America, almost doubled, Sterling noted. The S&P went significantly, surpassing just 40% in that range.