A combination of geopolitical pressures could spark the end of the U.S. dollar as the world's reserve currency, according to the head of FX strategy at Saxo Bank.

In a quarterly outlook note titled "The world is turning its back on the almighty dollar," John Hardy claimed the U.S. currency was "increasingly dysfunctional" and there was an urgent need to replace it.

The currencies analyst highlighted these three geopolitical issues currently putting pressure on the dollar's status:

The ongoing rise of China as it assumes a more prominent role in global trade and financial markets and in particular how it will manage policy and unwinding the excesses of its credit bubble in the wake of the 19th Party Congress scheduled for October 2017 without upsetting its domestic economy and the global economy,

The North Korean regimes striving to maintain credibility and untouchability as a nuclear power and how this impacts China-U.S. relations, but also how Japan deals with this threat in terms of domestic as well as foreign policy,

The loosening of the U.S.-Europe transatlantic alliance and how Europe and the EU finds its feet as a more independent superpower — or not — in its own right after the German elections

Hardy extracts "de-dollarization" as a direct theme that can be pulled from China's situation as the country looks to encourage demand for its yuan.

"China is eyeing the benefits of having its own currency play a larger role and to supplant the USD's role in global trade," he said. "The initial focus is on the global oil trade, where it has announced the intention of buying oil in yuan and allowing trade partners to settle that yuan in gold."

Hardy said settling in gold is a clever move by Beijing as it provides oil-exporting countries with a greater degree of comfort.

China is the world's largest importer of crude and the analyst forecasted that maintaining a stable currency while buying oil in yuan will be the first steps to increased global demand for renminbi.

"Russia and Iran, long suffering at the hands of U.S. financial and trade sanctions, will be happy participants in this scheme and could provide critical mass. The bigger test will be whether traditional U.S. allies, such as Saudi Arabia, would be willing to risk the ire and financial might of the U.S. by agreeing to receive yuan for oil," said Hardy.

On the second two bullet points, the analyst said Europe and Japan will seek less reliance on the U.S. dollar as they increasingly turn to fiscal policy to solve domestic issues.

"More forcefully so than in the U.S., where the political dysfunction of Trump could mean very little dynamism and only a weak response from the Fed — this leaves the USD out in the cold for different reasons — and having a harder time finding funding for increasing deficits because the rest of the world has its own agenda," Hardy said via email Wednesday.

The analyst said Europe's fiscal spend would focus on defense shortcomings while Japan would look to pull the trigger on a 2 trillion yen ($17.8 bn) stimulus plan.

Short-term dollar outlook

Hardy added that although his long-term outlook for the dollar was negative, there could be some short-term gains in relation to the appointment of the next Federal Reserve chair.

"Tax reform if it does prove to be Kevin Warsh (as next Fed chair), for example, you could get a bump on the dollar prospects," he said. "But further down if we are looking at 1.25 or 1.30 it is a question of entry levels for euro-dollar bulls to get involved rather than tactical buys for the dollar," he said.