The dollar faces a 40% drop in a scenario similar to the crash of the 2000s — opinion

RBC Capital Markets strategists have warned of a possible prolonged sell-off of the US dollar, potentially similar to the boom and bust cycles of the early 2000s, which could lead to a 40% drop in the currency. This is due to a shift in capital flows, which currently support US assets but may change depending on market conditions. Although the dollar is under pressure from political uncertainty, it has remained stable thanks to stock market growth and investment in the US economy.

Source Minfin

Currency strategist Richard Kochinos notes that global investors' capital has long sought more expensive US assets, which supports demand for the dollar. However, these trends pose serious risks. The process of diversification into lower-value assets, which was observed after the dot-com crash in 2000, may see similar dynamics in the currency market. Among the most significant threats today are high valuations of US assets and changes in trading paradigms.

RBC recommends that traders consider hedging strategies. The current investment environment differs from that of the 2000s, in particular, the role of illiquid and private investments has increased, which may accelerate market volatility in stressful conditions. If investors lose confidence in the unlimited growth of the US tech sector, it could trigger a domino effect with serious consequences for the dollar.