The prestige of the U.S. dollar is being questioned as the currency weakens and competitors such as the euro and the renminbi gain strength, an investment manager told CNBC Monday.
Though the U.S. economy has been performing well and the Federal Reserve has signaled further interest rate hikes, investors have been concerned over when and how this policy will be delivered.
U.S. President Donald Trump has not given details on tax reform and infrastructure spending — two of his biggest campaign pledges. This coupled with several scandals at the White House have let markets nervous with investors ditching the dollar for other currencies.
"There is a short-term discussion of the timing of the balance sheet reduction on the one hand or the winding down of the asset purchase program on the other," Didier Saint-George, member of the Investment Committee at Carmignac told CNBC about the next steps for the U.S. Federal Reserve.
"But I think more fundamentally you have what I touch on, which is this global thinking about currencies. If you are a global asset allocator, the status of the U.S. dollar is really being questioned. Is it necessarily the currency that justifies the same status as it has in the past years? I think strategically you can make the case that the dollar could see its status revisited downwards which would benefit the euro, probably it's benefiting not only the euro, but also the Chinese currency," Saint-George said.
The investment manager referenced the rise of the dollar index in 2014 when it started at around $80 and rose quickly to $90 before hitting $100 in 2015. While Saint-George doesn't expect the dollar index to fall back to $80, he is not discounting a fall from the current $92.425 handle.
"I think the question is at these levels for the dollar index … whether it could break down indeed and start going towards the kind of levels it was before the 2014 rise," Saint-George said.
Meanwhile, the euro was at another high on Monday. The common currency rose to a two-and-half year high against the dollar on doubts over the U.S. currency but also after European Central Bank President Mario Draghi gave two speeches last week with no indications about the bank's next steps for monetary policy.
The positive economic data, which included the release of better-than-expected purchasing managers' index (PMI) readings last Wednesday, and a large current account surplus in some euro zone economies, have given confidence to investors to buy euros.
However, there's some political risk in the horizon for the euro zone. Viktor Nossek, director of research at Wisdom Tree, said that the Italian election due in 2018 could be a problem for the euro area.
"We do think that in the first quarter of next year, this could potentially be a stumbling block, because there's very high unemployment, the Five Star Movement is neck-and-neck with the democratic party so there's nothing to suggest that the political risk in Italy has abated," Nossek said.