Nov 18 (Reuters) - While the dollar is the world's reserve currency it should continue to rise thanks to the enormous demand generated by central banks which lend it additional support when it might fall, and rise rapidly whenever it is in demand.
This win-win situation that can even boost its value when bad situations are focused within the United States has led to a big appreciation since the global financial crisis with the greenback gaining whether U.S. monetary policy was extremely accommodative or tight.
The dollar rose when the interest rate dropped towards 0% and the central bank was buying lots of bonds, and increased further when the Federal Reserve raised the U.S. interest rate rapidly and reduced its balance sheet.
While the number of dollars held globally has been dropping, there are many trillions of dollars still in the reserves of central banks with 58% of reserves remaining as dollars.
For this to change there must be a major alteration in the allocation of reserves where those managing them become confident in a new currency.
The euro, which plays second fiddle to the dollar, has never gained their confidence, and while the yuan is the currency of the second largest economy and could challenge the dollar, it will not until it becomes freely convertible.
Gold, which has soared in value, appears to have drawn the lion's share of any will to diversify in the past few years, but it is not liquid and has no ties to an economy or an interest rate.
Recent attempts to sell crypto currencies, which are highly speculative assets, as safe seem ludicrous as those invested in them may find in any significant risk averse situation.
The last such selloff, which also forced investors out of an overcrowded investment in the dollar, led to an ideal situation where a minor correction of dollar's rise was followed by the resumption of the long-term uptrend.
The greenback could soon rise beyond its 2022 peak and with far less now invested in it, there is little to restrain it from rising the 5 and 15% which are the next chart targets.
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own, editing by Ed Osmond)
((jeremy.boulton@thomsonreuters.com))
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