In This Article:
The dollar's (DX=F, DX-Y.NYB) status as the world's reserve currency allows the US to absorb global savings and sustain large fiscal deficits.
Columbia Threadneedle global rates strategist Ed Al-Hussainy joins Morning Brief hosts to explain how this dynamic supports low rates and why losing that status would be detrimental.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
Can we talk about the dollar as well, particularly as the global reserve currency. I guess, first can you just walk our audience through, like, it's pretty good deal to be the world's reserve currency, right? So we don't necessarily want to lose that status, can you explain why?
Yeah. Absolutely and ties into the treasury question.
Yeah.
Um, the world is very willing to give us their excess savings and we're very willing to take them and absorb them into our treasury market and into our risk assets. And that allows us to live in an environment where we invest more than we save. That's not, that's not the case in China, that's not the case in Europe. They send their savings uh to us. And that's a very fortuitous environment for uh US taxpayers, because we're able to sustain relatively large fiscal deficits that are partially funded by these uh foreign investors that keep our rates relatively low.
Does the president's tariff strategy depend on a stronger dollar? And the dollar is not strengthening, it's weakening.
You know, um, on paper theory would tell you everything else held constant. If you impose tariffs, that will ultimately strengthen the dollar. You're importing less, you're exporting less. Ultimately that's going to strengthen uh the dollar. Unfortunately, um, in today's environment, we've arrived at a point where markets are now looking at a higher probability of a recession, higher probability of fed cuts. And that's ultimately weakening the dollar in this environment. So the dollar at the moment is actually exacerbating the impact of tax cuts uh in to the ear. Uh, you should never rely on the dollar to offset these policy risks.
So when you take a step back, there's a lot of investors who we speak with, who say that they think that this is going to be okay because we're going to get negotiation, we're going to get tax cuts, we're going to get policy sweeteners. Where do you stand on that right now, Ed?
It's a little bit tough, in in essence, we're raising taxes via tariffs. We're cutting taxes, but potentially later this year through um the tax code uh legislation. Or at least extending the existing cuts.
That's right. We're going to extend them. We might add do a little bit more. There might be a little bit more and by the way, the more damage the tariffs do, the more likely it is that Congress is going to add those sweeteners in later later this year. You know, the the the problem is that the scale of the disruption and it's unfolding in real time here uh is really hard to control. There might be more.
And so odds are rising that the economy won't be able to handle the shock uh without significant fiscal support, without significant uh monetary support. And that's not really a good place for us to be.
