Billionaire investor Stanley Druckenmiller is shorting the US Dollar, which he describes as the only high conviction trade he has right now. The dollar has fallen by 10% since November 2022. According to Druckenmiller the USD will keep falling due to interest rate cuts and a rise in non-dollar trade agreements.
Druckenmiller has a 45-year long career in financial markets, and was George Soros’ right-hand man in breaking the Bank of England in an assault on the pound in 1992. The veteran investor is confident in taking the position against the greenback due to US policy risks and uncertainty, which have increased following the collapse of Silicon Valley Bank.
The Dollar (DXY) rallied aggressively in 2022, but has since declined 10% against a basket of other currencies since it peaked in November 2022. Druckenmiller believes the Dollar has a lot of runway ahead to fall further, however.
At an event hosted by the Norwegian sovereign wealth fund in Oslo on Tuesday, he said:
One area I’m comfortable is I’m short the US dollar. Currency trends tend to run for two or three years. We have had a long [run] higher.
Together with renowned trader and investor George Soros, who personally holds unknown amounts of Bitcoin, the two were on a winning streak at Duquesne Capital Management. After the successful career, the pair ejected from the $12 billion hedge fund in 2010 and formed a family office to manage the fortune.
Druckenmiller said he missed the 2022 dollar rally ‘because I could not bring myself to buy Joe Biden and Jay Powell . . . It was probably the biggest miss of my career’. But the trader said he suspects US policymakers will respond to an economic downturn with a new wave of interest rate cuts, which tends to facilitate a major drop in fiat currencies.
The Fed has shown some mettle over the last year but historically I would not say [Federal Reserve chair] Jay Powell is a profile in courage.
Moreover, Druckenmiller said the dollar had been ‘weaponised’ over the past year — a reference to the freezing of Russia’s dollar reserves following the Feb. 2022 invasion of Ukraine which kicked off the Russia-NATO conflict.
And you have [Brazilian president] Lula running around asking why we have to do trade in the US dollar, and he’s right to.
Druckenmiller said he was ‘unnerved’ by the Fed’s response to the Silicon Valley Bank failure in March, especially due to the speed at which the US central bank responded by expanding its balance sheet, and effectively unwinding over half of the balance sheet reduction it had started over the last few months.
In September 2022, Druckenmiller said that US central bank policy failures will lead to a Bitcoin and crypto ‘renaissance’. The radical policy change indicates that the decision to inflate the currency has already been made, suggesting this policy failure is underway.
Druckenmiller said that his largest asset allocation such as equities were probably less likely to show positive direction over the next ten years.
‘I think we will have a lot of swings’, he said. However, the investor expected a recession in the US and is not keen on the ‘old economy’ of small and midsized companies. ‘I’m in the hard landing camp’, he said during the conference.
The Dollar went on a tear in 2022 when the Fed aggressively pushed interest rates in an attempt to contain the inflation that same administration created in 2020, following the useless policy decisions to lockdown global economies.
However, investor fears of a hard-landing and great US recession are high. Similarly, fears that the US central bank is about to halt rates, potentially before cutting rates by the year end – has sent the Dollar index (DXY) down nearly 10% since its November peak.
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