US Dollar "Dead Cat Bounce"? Double Line Capital: May Devalue Significantly, Starting a "Multi-Year Downward Cycle"
Bill Campbell, the portfolio manager at DoubleLine Capital, stated that the US dollar may further depreciate, initiating a multi-year downward cycle. He pointed out that if the new Federal Reserve chairman quickly lowers interest rates, it will drive the dollar down. Although the dollar achieved its first monthly increase in July, Campbell believes that due to the US fiscal deficit and economic weakness, the dollar has entered a long-term downward trend. Trump's push to lower borrowing costs also puts pressure on the dollar
According to Bill Campbell, the portfolio manager at DoubleLine Capital, the US dollar is expected to depreciate significantly further, and if the newly appointed Federal Reserve Chairman can quickly take action to lower interest rates, it may become the catalyst for the dollar's decline. Campbell stated in an interview, "The dollar may have more room to fall." As of September 2024, DoubleLine Capital manages assets totaling $95 billion.
After experiencing the worst start to the year on record, the dollar achieved its first monthly increase since 2025 in July. However, Campbell maintains his view that the dollar has entered a multi-year downtrend, as investors are deterred by the massive US fiscal deficit and are shifting their investments to other regions.
One major disadvantage facing the dollar is the push by US President Trump to lower borrowing costs. Trump has repeatedly criticized Federal Reserve Chairman Jerome Powell, as part of an unprecedented public pressure campaign that has raised questions about the independence of the central bank.
Trump stated that he will announce the appointment of a new Federal Reserve governor to replace Adriana Kugler in the coming days. Adriana Kugler announced on Friday that she would resign from her position. Her departure provides Trump with the opportunity to appoint a governor whose stance is more aligned with his preference for lower interest rates. The candidate for this nominated governor position may take over as chairman when Powell's term ends in May. Trump denied any intention to fire Powell.
Campbell believes that the weakness in the US economy may also put pressure on the dollar. Data released last week showed that the labor market is in much worse shape than previously expected, and the inflation indicator favored by the Federal Reserve also rose in June. Slowing economic growth will make it more difficult for the government to correct the nation's fiscal trajectory.
Taking advantage of the recent stability of the dollar, Campbell is prepared for further depreciation and has increased investments in non-dollar bonds in emerging and developed markets. On Tuesday, the Bloomberg Dollar Spot Index rose by 0.2%. However, the index has fallen by 0.7% since the end of last month, with a cumulative decline of over 7% this year.
Campbell stated that the biggest threat to his theory is the US re-implementing "exceptionalism" policies. If fiscal policy is adjusted and trade policy becomes clearer, thereby boosting the economy, this scenario could occur, supporting demand for US assets.
The portfolio manager is also closely monitoring the commitments made by trade partners (including the EU and Japan) to invest billions of dollars in the US, which could offset outflows of other funds. However, the specific nature and timing of these investments remain unclear He said, "Regarding this matter, I am taking a wait-and-see attitude. Besides the trade agreement, I believe the pace of global savings returning to the United States will be slower than what we have seen in the past."
