The U.S. dollar will continue weakening, and investors may borrow it to invest in higher-yielding assets, says Peter Schiff, president of Euro Pacific Capital.
“I don’t know when (the dollar) is going to strengthen,” Schiff told CNBC.
“The dollar isn’t the new yen, it’s unfortunately the new peso.”
A weak dollar and low U.S. interest rates push the greenback toward becoming a carry trade currency, which, like the yen for many years, attracts investors to borrow it cheaply to invest elsewhere.
However, Schiff says, the dollar will weaken even further as the yen becomes a stronger currency, which makes the U.S. dollar resemble a more volatile currency such as the peso.
“Not only can you borrow dollars for very cheap and earn to carry by investing in higher yielding assets, but the dollar is going to fall sharply. So anyone who puts on the carry trade is going to make a ton of money.”
Japanese Finance Minister Hirohisa Fujii has repeatedly said his government will not interfere in currency markets and is happy with the strength of the yen, which is helping keep the dollar weak.
“Fujii said they won’t intervene,” says Sebastien Galy, a currency strategist at BNP Paribas Securities in New York, according to Bloomberg.
“That gave people license to sell the dollar-yen. The dollar is under pressure in general.”