Is the US Dollar Falling Out of Favour?

Posted by Allison on 12 August 2011, 11:18

You would have to have been somewhere out of this world to have missed one of the biggest news stories of the past week. This is of course the news that the US has had its AAA credit rating knocked down to an AA+ rating instead.  Despite the hard work the US government and the opposition did to come to a deal, it wasn’t quite enough for the rating agency to work with.

This has led to the possibility of the US dollar falling out of favour in certain quarters. The dollar has always been seen as a good haven – a safe haven – for other countries, and so they’ve been buying it up wholeheartedly in the past. But are things changing? It certainly seems as if they are.

Because now there is news from Zimbabwe that it might just drop the US dollar and opt to use another currency instead. It should be noted that Zimbabwe is currently using the US dollar in place of its own one, after hyperinflation knocked it for six a couple of years ago. So is this the first sign that the mighty US dollar might not continue to be so mighty after all? It could well be.

It is early days yet for the US and the downgrading only happened a week or so ago. But it has certainly filled up enough column inches and there has been a wide range of news stories speculating on where the US – and its currency – could go now. This is definitely one of those situations where the answer is that we just don’t know. This is the first time the US has been downgraded so there is no way of telling confidently enough that we could be in for a rough time with its currency.

One thing is for sure though, and that’s the fact that it will be a good idea to keep an eye on that all important exchange rate. It could change quite a bit over the coming weeks if these latest events have an effect.