Trading the Dollar Without its Special Status


The dollar has been in the dumps for weeks now, and even Thursday night's coordinated action to weaken the yen failed to lift the dollar against other currencies. Is the dollar losing its safe-haven status? And how should you trade it?

Barry Eichengreen, a professor of economics and political science at the University of California Berkeley, believes that there is no longer a logical reason for the dollar to be the world's only reserve currency.

"I think it simply makes no sense for the dollar to be the only global currency when the United States is only 20% of the world economy," he said on CNBC's "Money In Motion."

Eichengreen thinks the euro could be a global currency in five years, and he said he takes at face value the Chinese government's plan to internationalize their currency by 2020.

Rebecca Patterson, global head of currencies and commodities for J.P.Morgan's private bank, noted that the trade-weighted dollar is close to its all time lows.

"What we're talking about is really a structural shift in the currency markets. It does seem if it were ever going to happen, now is the time."

She is not recommending any short-term trades on this possibility. Rather, she said, "You shouldn't have all your money in dollars - maybe 15 to 20% of your total portfolio in something that’s not the dollar."

Andrew Busch, global currency and public policy strategist for BMO Capital Markets, predicted that once emerging market countries decide inflation is running too high, they will stop trying to push their currencies lower against the dollar, and "that's the inflection point." He thinks that could happen in the next 18 to 24 months. He is positive on the dollar short term, he said, but "We may not be that far away from the dollar beginning the process of that stronger move down."

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm.

"Money in Motion Currency Trading" repeats on Saturdays at 7pm.