The US dollar is the last safe haven in today’s wobbly market, despite the US economy being part of the problem, argues
Coutts in its latest exchange rates outlook.

The UK private bank sees the position of the US dollar as unthreatened as it accounts for more than half of currency reserves and average daily trading in the world. It is also backed by what is still the world's largest economy and the most liquid bond market.

“The dollar’s dominance means that it will be the beneficiary of further risk aversion, which is likely to be a persistent feature of the years following the global financial crisis,” the report says.

Coutts thinks investors are unwilling to trust possible contenders after the collapse of the Swiss franc as a safe haven. Last month, the Swiss government pegged its currency to the euro when the strong currency started to harm exports. “The peg to the euro, under pressure from the crisis engulfing its debt-encumbered member states, could mean further weakness against the dollar,” the report says.

Coutts stays pessimistic on the euro and thinks it will come under pressure from economic weakness and the reversal of interest rate rises made earlier this year. However, the bank believes that the debt crisis in Europe is solvable, and the report highlights that the global economy is steadying after the late summer collapse of confidence.