The dollar had its worst week since November.

“Dollar long positions are evaporating rapidly, with [producer price] numbers all but confirming the disinflationary narrative in the US,” said Francesco Pesole, currency analyst at ING.

June’s inflation figures “reinforced our view that recent dollar weakness will persist”, said Mark Haefele, chief investment officer at UBS Global Wealth Management. Sterling, the yen and the Swiss franc all stood to benefit, as did gold, which tends to rise in price as the dollar declines, Haefele added.

The last decade of sanctions and war have eroded global faith in the dollar, but the seizing of half of Russia's massive foreign currency reserves was the real tipping point.

Motivated by a mix of politics and economics, countries from Israel and France to Russia and China have signaled they're looking to start doing more business in a currency other than the US dollar. Central banks have also started to tiptoe away from the dollar, with currencies like the Chinese yuan, Japanese yen, and euro taking up a growing portion of global reserves.

These doom-and-gloom scenarios are overblown, financial experts told me, but in classic conspiracy fashion there's a kernel of truth to the freak out if you look hard enough. The percentage of financial transactions done in US dollars has slipped over the past few decades, and the percentage of countries' cash reserves that are held in dollars has been sliding.

The country controlling the global reserve currency holds that status of an average of 94 years. America's spot in that position has lasted 102 years. That by itself doesn't mean much, what matters much more are the political trends.

(Bloomberg) -- Oil-rich gulf monarchies are leveraging their wealth to deepen ties with China amid anxiety about the future of their longstanding security partnership with the US.

Seven months after President Xi Jinping participated in the first China-Gulf summit in Riyadh, economic exchanges between the world’s second largest economy and nations like Saudi Arabia and the United Arab Emirates have been accelerating — moving well beyond crude purchases where Beijing has been dominant for years...Dissatisfaction with the decades-old US security umbrella had been brewing for at least 15 years in the Middle East, exacerbated by what Gulf states viewed as unpredictable US policies toward the region, said Hasan Alhasan, a Bahrain-based research fellow at the International Institute for Strategic Studies, who meets regularly with senior Gulf officials.

“Now they’re realigning their foreign policies to serve their economic agendas,” said Alhasan. “They’re going to prioritize relations that are going to serve their national economic visions.”
...Having alternative partners makes the Gulf powers less dependent on the US. In recent months, Saudi Arabia, the UAE and other producers in OPEC have repeatedly defied pressure to open the taps as the US sought to prevent oil prices from fueling inflation.

Interestingly, the falling inflation rate is contributing to this trend.

Dollar bears are looking even further ahead, to what they say are inevitable rate cuts, something the market consensus sees happening at some point in 2024.

“Our call for the dollar to enter a multi-year downtrend is partly based on the fact that the Fed’s tightening cycle will morph into an easing cycle, and this will pull the dollar down even as other central banks cut as well,” Steven Barrow, head of G-10 strategy at Standard Bank, said in a note on Friday.
...More broadly, a softer US currency would tend to boost American firms’ exports at the expense of their counterparts in Europe, Asia and elsewhere.
...“The biggest risk that could lead to more dollar downside is that the inflation picture diverges,” said Cahill, a G-10 FX strategist. The bank forecasts the dollar will weaken to $1.15 per euro in 2024, from about $1.12 now, and that the yen will strengthen to 125 per dollar, from roughly 139 now.