Financial Crisis Prophet: The U.S. recession may start as early as the end of the year, and the dollar's fall is not over.

Source: Jin10

Despite the growing optimism surrounding the trade agreement, which may calm investors somewhat, a senior strategist believes the market should prepare for further pain.

David Roche, former Chief Global Strategist at Morgan Stanley and head of Quantum Strategy, believes that the value of the US dollar could plummet by about 15%-20% in the next five to ten years, and the US economy may face a more imminent recession before the end of 2025.

Rogers is a seasoned investor who accurately predicted the financial crises of 1997 and 2008.

Rogge's main concern is that Trump's trade conflict is damaging the reputation of the United States in global financial markets and causing investors to withdraw from U.S. assets.

He stated: "Reciprocal tariffs undermine the image of American 'exceptionalism'—that is, the global capital defaults to flowing into the United States. When the U.S. economy underperforms compared to other economies, this capital will flow out, dragging down the dollar and asset prices."

Since Trump initiated the reciprocal tariffs, the dollar exchange rate has continued to decline. The dollar index, which measures the dollar against a basket of currencies, has fallen by 8% since it returned to the White House. Roch believes the decline is far from over, as foreign investors have lost interest in U.S. and dollar-denominated assets.

Goldman Sachs estimates that foreign investors sold approximately $63 billion worth of stocks in the two months leading up to April 25. Roach hinted that this trend may continue and added that considering foreign investors hold about 18% of the U.S. stock market, $63 billion "isn't much."

U.S. Treasuries have also been impacted by trade conflicts, with yields spiraling upward during the peak of market volatility in early April. This is unfavorable for the value of the dollar, as the dollar tends to fall with weakened demand for U.S. assets.

Roach's analysis based on the real effective exchange rate (REER, that is, the value of the currency adjusted according to the trade weights of the two countries) said that there is still room for the dollar to fall. According to the Bank for International Settlements, the U.S. real broad effective exchange rate index was about 112 in March, still about 20 percent higher than Rocky's 2008 belief that the dollar was starting to overvalue. Other Wall Street forecasters are sending similar signals. Deutsche Bank said in its latest report that the U.S. is in the midst of a "dollar bear market" and noted that "the rest of the world is less willing to fund the U.S. growing twin deficits."

Jan Hatzius, chief economist at Goldman Sachs, stated that he believes there is "plenty of room" for the dollar to decline.

Hazzus wrote: "The depreciation of the dollar reinforces our view that the costs of the increase in U.S. tariffs will primarily be borne by American consumers, rather than foreign producers."

Rogers stated that given the significant changes in global trade, a large-scale withdrawal from the U.S. may take five to ten years. However, he believes that as the dollar weakens, there may be a more immediate chain reaction—primarily a recession that could occur by the end of 2025.

A weakening demand for U.S. Treasury bonds may lead to problems in government financing. Although Trump promised that tariffs would result in "huge funds" flowing into the U.S., Roche stated that this is unlikely as tariffs would hinder trade.

He said that the overall impact of the trade conflict could dampen growth and may lead to a recession as early as the end of this year or early 2026.

He said: "I think that when the market realizes that this funding will not come from tariffs, and foreigners will not invest money in the U.S. as they did before, the current budget may face a crisis."

As traders assess the potential impact of trade conflicts on global growth, concerns about recession have been rising. The latest survey by Bank of America shows that 80% of global fund managers believe that the biggest tail risk for the market is a global recession caused by trade conflicts.