With the US economy in a prolonged slump and the Fed likely to keep interest rates low for the foreseeable future, many worry that a dollar crash will be the next shoe to drop. Currency pessimists can point to a 6-month decline in the dollar; this week the currency hit $1.50 against the euro. But concerns of an imminent full-on crash are exaggerated—the dollar’s recent decline is a normal readjustment after the shocks of the financial crisis.
In the 6 months after Lehman Bros. collapsed in 2008, fearful investors took refuge in US Treasuries, sending the currency to an unnatural high. The dollar now is in fact close to where it was shortly before Lehman’s collapse. So fear not for the dollar’s short-term futures: the yuan and euro are not yet ready to supplant it as a reserve currency, and the global crisis proved that the dollar “is still a currency to flee to, not from,” the Economist writes.
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