As Asian investors and asset managers move away from US dollar assets, central bankers in the region may be attempting to mitigate the trend. Taiwan’s central bank, for instance, has intervened to rein in the local dollar’s gains against the greenback.
But such moves may be more about slowing the pace of decline rather than changing the direction, and the trend may be irreversible. Prospects of a US recession in and uncertainty around the Trump administration’s only enhance the risk premium for US dollar assets.
In this context, recent postings on X by Ray Dalio, co-chief investment officer of Bridgewater Associates, have almost become received wisdom. He warned that “whatever happens with tariffs, these problems won't go away, and that radically reduced interdependencies with the US is a reality that has to be planned for”.
According to Dalio, the role of the US as “the world’s biggest consumer of manufactured goods and greatest producer of debt assets to finance its over-consumption is unsustainable”.
Talk of a so-called Mar-a-Lago Accord and active efforts by the Trump administration to drive down the value of the US dollar look both destabilising as well as redundant in the light of what’s already happening. Arguments that this is a good thing for the US are being exposed as the same kind of kindergarten economics that have been coming out of the White House.
A weaker dollar is no help to US exports if trade wars and tariffs are reducing export opportunities anyway. Dalio’s assertion that the US situation is unsustainable seems unarguable, and US policies are making it worse.
“We are on the brink of the monetary order, the domestic political and the international world orders breaking down due to unsustainable, bad fundamentals that can be easily seen and measured,” Dalio said.
Those bad fundamentals were already in place before Donald Trump. They are now out in the open, and investors are acting accordingly.