The U.S dollar started the week on a back foot plunging to 22-month lows, having lost its safe-haven appeal. Billionaire investor, Ray Dalio, believes the greenback is at risk of weakening further amid deteriorating U.S-China relations.
Dollar Weakness
Dollar weakness has led to gold powering to record highs and showing no signs of slowing down. The precious metal has already clocked record highs of $1980 with the $2,000 level in sight amidst a recent pullback.
The gold rally comes at the back of investors rushing to the safe-haven as U.S-China remains entangled in a fierce standoff. The U.S shutting down China’s embassy in Houston has already triggered an immediate response, with Beijing ordering the shutdown for the U.S embassy in Chengdu. The soaring tensions have only gone to fuel risk aversion in the market, with investors opting to scamper for safety in Gold rather than the greenback.
Capital War
According to Dalio, the escalating tensions are on the cusp of triggering a capital war that could immensely hurt the dollar. The two superpowers are already entangled in a fierce trade war, technological war, and geopolitical war as the supremacy tussle gets out of hand.
While China and the U.S are already exploring ways of hitting back on each other, a capital war could be the next frontier. The capital war could come in the form of the U.S ordering people not to invest in China. The U.S withholding payment for bonds to Chinese investors could also amount to a capital war. Such moves would likely trigger a similar reaction from Beijing.
The U.S dollar has already slipped to 22-month lows as the economic outlook continue to turn negative. A second wave of coronavirus infections has also aroused concerns about the U.S economy, conversely fuelling weakness in the greenback.
According to Dalio, the U.S is its worst enemy and one of the reasons behind the dollar weakness. The billionaire investor insists now is not the time to continue running deficits let alone sell debit and print money.
