Central Banks Consider Currency Devaluation Amid Dollar's Decline

The dollar's 9% fall since the beginning of the year has strengthened global currencies and posed a new dilemma for central banks. The weakening of the U.S. dollar eases imports and reduces inflation but simultaneously undermines export competitiveness.

A Bank of America survey showed that most investors expect further dollar declines over the next 12 months. This is the most pessimistic sentiment since the early 2000s. Central banks welcome a weaker dollar but fear a surge in inflation and potential currency wars.

Some countries, such as India and South Korea, may use the opportunity to lower interest rates. However, emerging markets with high dollar-denominated debt are concerned about capital outflows.

So far, most central banks are trying to avoid devaluation, fearing negative consequences for their economies and international relations. The scenario of currency wars remains unlikely for now, but rising trade tensions could change the situation.

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