Greenback seen on the way down as other economies catch up with US

The greenback has an overarching and enduring sway over the financial world with the central role US banks and currency play in the global economy.
But some of the world’s top investors are betting the worst of the dollar’s rampage is now over.
Having skyrocketed to generational highs last year — deepening poverty and turbocharging inflation from Pakistan to Ghana — the currency has now entered what some forecasters are calling the start of a multi-year decline.
Investors say the dollar is on the way down because the bulk of Federal Reserve rate increases is over, and virtually every other currency will strengthen as their central banks keep tightening.
Many investors are sticking with these bets, even after the greenback recently recouped its losses for the year, raising the stakes for dollar bears.
“The dollar’s peak is behind us for sure and a structurally weaker dollar lies ahead,” said George Boubouras, a three-decade market veteran and head of research at hedge fund K2 Asset Management. “Yes inflation in the US is stubborn, yes the rates market is signalling higher-for-longer US rates but that doesn’t take away the fact that other economies in the world are catching up with the US.”
The main problem that’s been tormenting finance officials from Frankfurt to Seoul for quite long has been inflation. Weak currencies add fuel to that by increasing the cost of imported products such as fuel and food.
Nations that have chosen to peg the value of their own currency to the dollar — like most countries in the Gulf region — face challenges both in maintaining that link and in dealing with the economic fallout of basically importing the dollar’s strength, which weighs on policy and prices domestically.
For sure, the relief that a weaker dollar would bring to the world economy cannot be overstated.
Import prices for developing nations will fall, helping to lower global inflation.
It’s also likely to boost the price of everything from gold to as equities and cryptocurrencies as sentiment improves.
Policy makers in the eurozone and Australia are now signalling that more rate hikes are needed to vanquish inflation, while speculation is mounting that the Bank of Japan will abandon its ultra-loose stance this year.
Some market participants see the Fed opting for modest rate increases on expectations that price pressures will ease.
That view is somewhat at odds with the US central bank’s assessment that inflation remains a worry, and further hikes are needed to bring it down to the 2% target.
All this means that the currencies which suffered under the weight of a stronger dollar are likely to strengthen.
The yen has already climbed more than 12% against the greenback since dropping to a three-decade low in October.
The euro has risen about 11% from the low reached in September while the greenback has lost ground against most of its Group-of-10 peers in the past three months.
The Bloomberg JPMorgan Asia Dollar Index has advanced more than 5% since falling to a trough in October.
Here’s the other side of the argument.
Some investors are already testing the theory that the dollar’s dominance is over.
abrdn turned neutral on the greenback late last year from a long position, while Jupiter Asset Management is shorting the US currency outright. K2 Asset Management has dialed back its long dollar exposure since October.
Despite warnings about long-term headwinds for the dollar, here’s the undeniable reality: Dollar is the king, still.
The US currency is on one side of almost 90% of foreign-exchange transactions and accounts for two-thirds of international debt.
Virtually all international trades in oil are priced in dollars.
To be clear, no one is betting that the dollar’s decline will be a straight line as US rates continue to rise and the threat of a global recession and geopolitical risks foster demand for havens.