The dollar has been weak against other currencies for some time now. As a result, the United Arab Emirates is planning to convert some of its greenbacks to euros. At least one analyst says this is “a sign of things to come.” Or it could the same diversification that has been taking place for years, says another analyst. Melissa Lee had two currency experts on “Closing Bell” to debate the issue.
Ashraf Laidi is chief currency analyst at CMC Markets U.S. He portends doom for the dollar. His example: Russia, China and OPEC hold $1.4 trillion in currency reserves. A proposed 5% shift from dollars to euros over the next six to nine months by these countries would be worth $60 billion. “That’s not a drop in the bucket. That’s big news,” he says. Laidi expects this trend to continue.
Lara Rhame, however, has a different take. She's a vice president and foreign strategist for Credit Suisse First Boston, and she says the world's central banks are looking for liquidity and yield. So while the European Central Bank’s expected rate hikes are boosting the euro’s yield, the dollar’s not too far behind. She's not expecting all the central banks to dump their dollars. What we’re seeing is “a continuation of a process that’s well underway,” she says.
Predictions for next year? Laidi sees a yearend dollar/euro price of $1.37 and dollar/yen price of $1.16. Rhame is only looking three months out, and her dollar/euro price isn’t that different than today’s – $1.32. Her dollar/yen call is $1.17.