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The U.S. dollar came under pressure this year amid expectations of a pivot by the Federal Reserve, and the greenback is at risk of losing its safe-haven appeal, said an economist late Wednesday.
What Happened: The Swiss franc, a currency considered a safe haven along with the dollar and the yen, is poised to record its biggest annual gain since 2010, given its 10% advance so far this year, said economist Peter Schiff in a post on X, formerly Twitter.
A safe-haven bet is a financial asset that will retain its value or even appreciate during downturns or inclement conditions.
“I think it [franc] will hit a record high against the dollar in early 2024,” Schiff said, adding “an ominous sign the dollar has lost its safe-haven status.”
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Why It’s Important: The Dollar Index, which is a relative measure of the U.S. dollar’s strength against a basket of six major currencies, has fallen about 3% this year, with the weakness blamed on rate cut expectations. Lower interest rates will make returns from investing in the U.S. less attractive and this in turn will reduce the demand for the dollar and weaken it.
The dot-plot chart released as part of the Fed’s Summary of Economic Projections after the December meeting shows that central bank officials have factored in three rate cuts in 2024.
The dollar is also pressured by talks of credible alternatives emerging elsewhere. The BRICS nations, a group comprising the emerging economies of Brazil, Russia, India, China, and South Africa, have been sounding out the prospect of an alternative currency to take on the dollar’s dominance.
The Invesco DB US Dollar Index Bullish Fund UUP, which is an exchange-traded fund that seeks to track changes in the level of the Deutsche Bank U.S. Dollar Index, ended Wednesday’s session down 0.52% to $26.95, according to Benzinga Pro data.
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