The currency market is akin to a ticking time bomb that could explode at any moment, triggering a significant shift in global finances. The DXY index, which previously topped the charts, has struggled to climb above the 100 level for a year. Though it has briefly touched 100 a few times, it failed to cement itself above the range. Bank of America is ringing the warning bell, citing that the US dollar’s large fall could lead to a global recession and shock.

The Bank of America’s report explains that a weaker US dollar will likely slow down the financial growth of developing countries. However, developed nations could escape unscathed as they remain financially powerful to withstand the shock. Another note in the report read that the greenback’s fall is not in everyone’s interest. Neither the US nor the rest of the world will benefit from the falling greenback.

“A large real depreciation of the dollar vis-a-vis other currencies would be a recessionary shock for the global economy ex-US. And while some economies with strong momentum could withstand it well, most developed economies would not emerge unscathed,” read the Bank of America’s report on the US dollar’s weakness.

Also Read: Wall Street Backs Gold, Silver with Latest Forecast: Prices Rally

Global Financial Markets Will Remain Unstable If US Dollar Falls: Bank of America

Bank of America noted that the US dollar’s stability leads to an orderly market in the global monetary system. A tilt in balance makes it disorderly and will disrupt trade, investments, and the stability of the markets, resulting in a loss. Such a move could lead to a “recessionary shock” with high periods of volatility. The ones that will suffer the most are the countries that are still economically developing.

A stronger US dollar comes with productivity advantages and confidence in the monetary system. Its decline would only be damaging to other economies and cut through their growth.