Naysayers of the world’s reserve currency forget its potential as an asset in what are still crisis conditions, says RWC Diversified Returns Fund Manager Clark Fenton.As aggressive fiscal and monetary policies mean risk is shifting from private to government balance sheets, foreign exchange will feature more prominently, more so in the near term than government debt while heavy-handed central banks keep QE programmes at full throttle. 

 
As long as currency-debasing policies abound, then gold, will remain a primary investment for the fund. The US dollar (USD), however, also remains key according to Fenton. Unlike gold, going long on USD is anti-consensus, as is evident from positioning reports, the press, and the price action.
 
“We concede that the cost of USD has gone down, with US real rates of interest plummeting. However, we do not think the Fed will take its policy rate negative. Critical USD funding markets such as commercial paper would struggle to function under such a scenario.
 
“Meanwhile, we think other governments will struggle to keep policy rates where they are, for example, the Bank of England. Negative nominal rates out to seven years on the yield curve suggest more inevitability than debate. 
 
“The failure of American leadership to respond effectively to the coronavirus has been tragic and humiliating. However, what is bad for the world’s largest economy is bad for the world.  Yes, the USD looks less attractive in isolation, but do the large alternatives actually look much better?”