Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carroll, and
Speaker 1: this is Here's Why, where we take one news story
Speaker 1: and explain it in just a few minutes with our
Speaker 1: experts here at Bloomberg.
Speaker 2: I think on the long term, it is important that
Speaker 2: we have a strong dollar. The dollar is the reserve
Speaker 2: currency of the world, and a strong dollar refracts a
Speaker 2: strong economy. In the short term, particularly because of trade.
Speaker 2: You know, the strength of the dollar can can have
Speaker 2: a negative impact.
Speaker 1: These days, everyone has an opinion on the dollar. That's
Speaker 1: former US Treasury Secretary Stephen Manusan speaking to Bloomberg recently.
Speaker 1: The dollar is a key part of America's economic strength
Speaker 1: that underpins global finance and trade. But since Donald Trump
Speaker 1: unleashed his global trade war, there are cracks in the
Speaker 1: greenback's image. Bloomberg's Dollar Index, which measure its strength against
Speaker 1: ten leading global currencies, has had its worst start of
Speaker 1: the year since it was created in two thousand and five.
Speaker 1: I think there's.
Speaker 3: One thing where there's a sea change the dollar.
Speaker 1: I don't think you can can overstate the importance of
Speaker 1: this dollar shift.
Speaker 2: What the dollar is doing is particularly critical, namely to
Speaker 2: watch whether is this foreigner silling, is this domestic invester silling.
Speaker 3: If you're not a dollar based economy, you have to
Speaker 3: understand how that's going to impact your investments.
Speaker 1: This isn't just a big deal for the US. The
Speaker 1: dollar's central role in the global economy means the consequences
Speaker 1: are felt just about everywhere. So here's why a weaker
Speaker 1: dollar matters for the world. Our resident dollar expert Celemoson
Speaker 1: is back with us to explain. Seleia, you are our
Speaker 1: senior Washington correspondent but also author of the book paper Soldiers,
Speaker 1: How the weaponization of the dollar changed the world order.
Speaker 1: Great to have you back with us. Can you put
Speaker 1: in context the drop that we've seen in the dollar
Speaker 1: this year?
Speaker 3: For US, it's a huge drop and itself inflicted. It
Speaker 3: wasn't because there was an attack on the country or
Speaker 3: that there was an economic collapse. It was because the
Speaker 3: president imposed economic and fiscal policy that has shocked the world.
Speaker 3: Traders weren't ready for investors, foreign allies, and also puts
Speaker 3: future growth into uncertainty. The other reason the drop is
Speaker 3: interesting is because usually the economic theory predicts that if
Speaker 3: tariffs are announced, you would think that the dollar would
Speaker 3: actually trend higher and stronger because it is a safe haven,
Speaker 3: and so everyone would think, oh, there is uncertainty, there
Speaker 3: is risk coming down the pike, let's go to the
Speaker 3: safest asset in the world. But actually there was a
Speaker 3: flight of capital from the US and US based assets,
Speaker 3: and that included the dollar.
Speaker 1: So who are the big winners and losers than from
Speaker 1: a weaker dollar.
Speaker 3: Foreign tourists coming into the country are benefiting from this
Speaker 3: because their foreign currencies are able to get more for
Speaker 3: their buck. Of course, we have other considerations that are
Speaker 3: damaging tourism to American like some of the visa and
Speaker 3: travel and use citizenship issues. But for American consumers or
Speaker 3: Americans traveling abroad, that means that their dollar stretches not
Speaker 3: quite as far as it used to. So if you're
Speaker 3: in Europe, your burger at McDonald's is going to cost
Speaker 3: more than it used to because your dollar is weaker.
Speaker 3: It is somewhat good, you would think in theory for
Speaker 3: American manufacturers, because they're able to export more goods because
Speaker 3: foreign countries can purchase more afford more American goods. But
Speaker 3: the tensions, the geopolitical tensions, the economic ties between trade
Speaker 3: partners and allies have become strained from Donald Trump's manner
Speaker 3: and methods and applying these tariffs, and so there isn't
Speaker 3: that much political will to purchase from the United States.
Speaker 1: What about for companies elsewhere in the world that might
Speaker 1: be considering, I suppose broader impacts on their businesses, like
Speaker 1: for example, here in Europe.
Speaker 3: The big problem for them right now is that there's
Speaker 3: so much uncertainty. It's really unclear exactly how this is
Speaker 3: going to impact economic growth. Now. A lot of predictions
Speaker 3: are out there of a recession in the United States
Speaker 3: for one or two quarters. It depends on how some
Speaker 3: of these trade deals shake out, and so the uncertainty
Speaker 3: is making it hard for all businesses to make plans
Speaker 3: for the future, including European businesses. Also, the supply chain
Speaker 3: shock is really syncing in for people. It's confusing to
Speaker 3: know when the terraffs will be applied, which terrafts will
Speaker 3: really hold once this ninety day pause and all the
Speaker 3: trade deals have been struck, So businesses are scrambling and
Speaker 3: either trying to get goods in and out of the
Speaker 3: country fastered before the deadlines, or they've already faced some
Speaker 3: of these tariffs, and they're struggling to figure out how
Speaker 3: to get around things and get products that they need.
Speaker 1: The dollar is also a key part of a lot
Speaker 1: of investment strategies. How has a weaker dollar changed the
Speaker 1: approach of money managers?
Speaker 3: Well, it's a broader picture, right, So there there's a
Speaker 3: weaker dollar for confusing reasons. It's unclear whether the US
Speaker 3: economy is going to be able to weather this storm
Speaker 3: of tariffs, and so if there's uncertainty about where the
Speaker 3: economic growth is going, and which means where is the
Speaker 3: dollar going, investors don't know where to place their money
Speaker 3: for a surefire bet, right, so they don't know whether
Speaker 3: we should just sell out of our investments and just
Speaker 3: keep cash. We saw that Mobius has ninety five percent
Speaker 3: of its and its money in cash right now because
Speaker 3: they just don't know where to put their money.
Speaker 1: The weakening of the dollar has consequences everywhere, and this
Speaker 1: is something that you examine in your book as well.
Speaker 1: When you think about all of the different effects that
Speaker 1: we've seen around the world from this, what's been most
Speaker 1: unexpected or stood out for you.
Speaker 3: There's a lot of talk about the dollar's demise as
Speaker 3: the world's reserve asset. When we talk about a stronger
Speaker 3: a week dollar, there's two definitions to that. There's the
Speaker 3: first one that we've already discussed, which is its strength
Speaker 3: or weakness by foreign exchange rate against any other currency
Speaker 3: at a day to day trading level. The second is
Speaker 3: just the dollar's global dominance. The dollar is one end
Speaker 3: of ninety two percent of transactions in the world. The
Speaker 3: dollar is the lingua franca of global finance. And if
Speaker 3: the world, if foreign central banks, foreign allies, investors are
Speaker 3: wondering that the US policymakers are maybe behaving in a
Speaker 3: less credible manner, then the dollar may not maintain some
Speaker 3: of its dominant status because investors and foreign central banks
Speaker 3: are going to think, maybe we need to diversify away
Speaker 3: from US assets. And when you have that trend begin,
Speaker 3: that means that American sanctions economic sanctions will become less potent.
Speaker 3: It means that the US will have a little bit
Speaker 3: of a less stronghold on the global economy and military prowess.
Speaker 3: But also it's important to remember that nothing's going to
Speaker 3: happen overnight. So the dollar gained its dominance over many,
Speaker 3: many decades. It's going to take a decade plus for
Speaker 3: it to actually come off of that very high perch,
Speaker 3: and maybe we'll move more into a multi currency world
Speaker 3: where the dollar remains dominant, maybe not quite as dominant
Speaker 3: as it has been, with some other currencies also gaining
Speaker 3: some of that strength.
Speaker 1: For now, does it look like the trend of the
Speaker 1: weaker dollar is set to continue?
Speaker 3: If we're talking about foreign exchange rate in that week dollar,
Speaker 3: then I'm really curious as to what we're going to
Speaker 3: hear from the Federal Reserve in the next couple of weeks.
Speaker 3: You know, they have an interest rate decision coming up.
Speaker 3: Are they going to cut rates? Are they going to
Speaker 3: signal that the rates could go lower depending on where
Speaker 3: economic grows. I think right now the power for where
Speaker 3: the dollar is headed in terms of foreign exchange rate
Speaker 3: may lie with the Fed and interest rate paths.
Speaker 1: Thanks to our senior Washington correspondent, Silia mosen And, you
Speaker 1: could read more on this in Selaia's book paper Soldiers,
Speaker 1: How the Weaponization of the Dollar Changed the World. Order
Speaker 1: For more explanations like this from our team of three
Speaker 1: thousand journalists and analysts around the world, go to Bloomberg
Speaker 1: dot com slash Explainers I'm Stephen Carroll. This is here's why.
Speaker 1: I'll be back next week with more Thanks for listening.