The Bloomberg Dollar Spot Index rose the most in more than a month on Thursday, which isn’t surprising given that the Federal Reserve raised interest rates again on Wednesday. After all, higher rates tend to attract foreign capital. What is surprising is that traders shouldn’t get used to many more big days for the greenback if JPMorgan Chase & Co.’s all-world analyst Marko Kolanovic is to be believed.
Kolanovic, who has dominated Institutional Investor’s annual rankings of top strategists for a decade or so, was out with a research note Thursday arguing that President Donald’s Trump’s isolationist foreign policy is a “catalyst for long-term de-dollarization.” Put another way, the dollar is in jeopardy of no longer being the world’s primary reserve currency and all the benefits that go along with that, such as interest rates that are lower than they otherwise might be and the government’s ability to fund budget deficits in perpetuity. “With the current U.S. administration policies of unilateralism, trade wars, and sanctions increasingly affecting both friends and foes, the question arises whether the rest of the world should diversify away from the risks of the U.S. dollar and dollar-centric finance,” Kolanovic and his team of quantitative and derivatives strategists wrote in the note, according to Bloomberg News’s Cecile Gutscher. To be sure, this won’t happen overnight, and any shift away from the dollar would take many years, but the warning serves to highlight a topic that is increasingly being discussed. That’s why Friday’s International Monetary Fund report on global currency reserves is most likely to get more attention than usual.