According to ABN AMRO's global head of FX strategy the US dollar is set to further weaken, against virtually everything except perhaps the Philippine peso.
London-based Tony Norfield is predicting that dollar-euro will go to 1.35 within six months and dollar-yen will hit 103 within three months and 100 within 12 months. In the second half of the year, he sees an inevitable strengthening of most currencies in Asia with dollar-won appreciating from 1180 to 1060. He also sees a small revaluation of the dollar/Rmb happening quite soon after Chinese New Year in the second quarter.
Norfield says people are increasingly asking themselves the question "Why should I hold dollars?" They are earning 1% or less for holding dollars plus they know the US government is keen for the value to fall. He points out that the case of China is an interesting one.
He notes that US dollar deposits held by individuals hit their peak in China in June last year, when Chinese people collectively had $91 billion of US dollar savings. However, with interest rates slashed and the US administration going out of its way to encourage a devaluation of the dollar versus the renminbi, the ordinary Chinese person has changed their attitude. Norfield says that in the last five months $5 billion of those savings have been converted out of dollars into other currencies or renminbi. "That's one billion a month," says Norfield, "and if this is a snapshot of a bigger picture - which I think it is - it will become a big problem."
Indeed the loss of confidence of international savers in the dollar - which has long held the place as the world safe reserve currency - is the first casualty of the currency's recent slide. Norfield says the euro is the inevitable beneficiary as it increasingly takes on the dollar as a credible store of value and becomes increasingly important in financial markets.
Norfield points out that the euro's share of non-resident FX deposits held by banks in London has, according to Bank of England data, risen from 26% in 2001 to around 37% today.
The only thing left supporting the dollar and the deficits, says Norfield, are Japan and China's central banks. "The private sector has already voted against the dollar," he comments. "According to the charts the dollar's decline could move another 10-20%. There are weak investment flows into the US and the risk of bad politics looms large."
And he notes that private investors now have to think carefully before making investment decisions about US equities because they know their gains will be nullified by the loss on the currency. "Even with 4% growth in the US economy, do I want to buy General Motors' stock or that of Toyota? Both will benefit from an improving US economy, but if I buy GM I am exposed to the weakening dollar and if I buy Toyota I am not."
He says such a faltering in investment flows into the US equity market - which will hit the ordinary American - is what may eventually politicise the weak dollar issue. "Frankly, at the moment most ordinary Americans don't care where the dollar is trading. That's why when you watch shows like CNBC, there is lots of talk about currencies and the dollar in Asian and European hours, but the currency completely disappears from the ticker in US hours."
He has a point. When Robert Mundell was recently interviewed on CNBC and talked about a dollar crisis, the presenters of the show appeared somewhat bemused, with Joe Kernen in particular joking in an offhand way about the whole idea.