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The US dollar has fallen by about 7% against a broad basket of currencies since its mid-March peak. After a nearly decade-long bull market that saw it appreciate by more than 40%, economists at Charles Schwab believe the dollar could be headed for a longer-term decline. 

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“We expect the dollar to move lower over the next year or two. In the past, the dollar has moved in very long-term cycles, so this could be the start of an extended decline. However, we are not in the camp that sees a major crash. The dollar’s recent decline has already taken it back to near its five-year average.”

“Nor do we see the dollar losing its reserve status any time soon. A shift of that magnitude would likely require major changes in the global financial system and a viable alternative currency. The euro may be a contender, but its financial markets are too fragmented to meet the needs of global investors. China’s currency isn’t even freely tradable because the country has capital controls in place and it only accounts for about 2% of global financial transactions. The dollar can and has fluctuated widely over time without changing its reserve status.”

“A cyclical decline in the dollar seems more likely. It rose more than 40% from its low point in 2011 before peaking in March. A drop of another 5% to 10% would not be surprising, and would likely benefit the US economy.”