[King Dollar's Bombardment] Highest in 20 Years... Is the 'Post-Dollar Era' Coming?

Dollar Index Shows Long-Term Uptrend Over 11 Years
Analysis Suggests Dollar Value Near Peak
6-Year Decline After Dot-Com Bubble Burst
Dollar Expected to Fall If Recession Begins Next Year

On the 6th, an employee is organizing dollars at the Hana Bank Counterfeit Response Center in Jung-gu, Seoul. [Image source=Yonhap News]

Although the value of the dollar has surged to its highest level in 20 years, analysis considering past trends suggests that it will soon peak and shift to a weaker stance, drawing attention. It is pointed out that if the Korean won appreciates following the ‘King Dollar’ period, countries like South Korea with high export dependence could be hit hard, highlighting the need to prepare for the ‘post-dollar’ era.

According to the financial sector on the 7th, the Dollar Index (March 1973=100), which shows the value of the dollar against six major currencies, fell to 72.9 in April 2011 but has risen over the past 11 years to around the 110 level. This is the highest since 2002, right after the dot-com bubble burst. Looking at the dollar cycles since the 1970s, dollar uptrends typically last about seven years, leading some to analyze that the dollar is already close to its peak.

Ruchir Sharma, chairman of the U.S. asset management firm Rockefeller International, recently contributed an article titled “The Post-Dollar Era is Coming” to the UK’s Financial Times (FT), emphasizing the need to recognize that the dollar is nearing its peak and pointing out that "a turning point may be near." In fact, the Dollar Index surpassed the 120 level during the 2002 dot-com bubble collapse but then experienced a long-term six-year decline amid economic instability.

Currently, as competing currencies like the euro and yen are faltering, the possibility of a strong dollar weakening immediately is low. However, since the U.S. has already entered a technical recession, a turning point where the dollar’s upward trend breaks could come soon.

Professor Kim Young-ik of Sogang University Graduate School of Economics also judged that "the U.S. dollar is excessively overvalued." He said, "The International Monetary Fund (IMF) projects the U.S. economic growth rate to be 1.0% next year, which is lower than the Eurozone’s 1.2% and Japan’s 1.7%," adding, "As the U.S. economy enters a recession phase, the dollar’s value is expected to decline."

He continued, "According to the real effective exchange rate estimated by the Bank for International Settlements (BIS), the dollar was overvalued by about 30% as of July," and said, "Next year, the dollar’s value is expected to fall while other currencies excluding the dollar will likely appreciate."

Moon Hong-chul, a researcher at DB Financial Investment, predicted, "Strong dollar conditions will continue until the end of this year as U.S. inflationary pressures persist, but if the global economy enters a recession next year and there is a ‘trigger’ such as changes in the Federal Reserve’s monetary policy, the trend could shift." He explained that a shift in the won-dollar exchange rate trend would require prerequisites such as a slowdown in U.S. tightening, improvement in Europe’s energy supply, and stabilization of China’s real estate market.

Jo Jun-gi, a researcher at SK Securities, said, "It is difficult to find immediate factors for a phase reversal, but the possibility of testing a directional change by the end of this year could open up," adding, "Since the dollar’s value has risen to the highest level in 20 years, it is necessary to keep the possibility of a downside open and prepare accordingly."