IN DOLLAR WE TRUST

The US dollar’s rapid decline over the summer has raised many questions on account of the currency’s unique role in the international financial system. The sharp rise in US public deficits and the Fed's balance sheet raises fears of a long phase of dollar correction? How deep will the dollar fall ? Is the euro an alternative to the US dollar in light of the possibility mutualised debt instruments could be issued as part of the EU’s Recovery Plan? To answer these questions, we consider below the US dollar’s various determinants. What we go on to show is that the currency’s correction will be limited to 15%, as the conditions for a more pronounced, 30% correction are not satisfied.