2022-06-27 • Updated
The value of the US dollar continues to rise, but is this because of the strength of the dollar itself or just the weakness of the euro, Japanese yen, and British pound?
Since the beginning of the year, the US dollar index has been up 8.8%, with the Federal Reserve continuing to fight inflation after raising rates three times so far. And so, one by one, major central banks began their battle to tame inflation and keep pace with the Fed's reckless tightening. From here, the dollar soaked its strength, but is it a real strength, or is it due to the weakness of other currencies?
The Japanese yen has always been a safe haven for risk-averse investors and traders. But for now, it's not, as the Bank of Japan persists in keeping rates close to 0% while sticking to ultra-easing policies and massive bond purchases. While most of the world is fighting inflation, Japan has struggled with deflation for decades.
However, after the wave of rising prices globally, inflation in Japan finally jumped above the 2% target. Therefore, it's unsurprising to see the yen weakening against the US dollar. So far, the yen has fallen more than 17% after the dollar broke through 136.50 levels for the first time in 24 years. If the BoJ continues its easing policies, the pressure on the Japanese yen will persist.
The European Union suffers from very high inflation that has reached 8.1%, its highest level ever. However, the European Central Bank didn't respond to the pressures. Everyone criticizes the ECB for allowing other central banks to get ahead of it. What's more, the ECB's insisting on not hiking rates or ending its bond-buying program.
The euro will feel the most damage because signs of recession in Europe are showing faster than in the US. All of this pushed the euro down, coming close to parity with the USD, after dropping below 1.05 for the first time since 2016.
However, the euro may get some support after the ECB confirms its intention to raise rates at next month's meeting. The euro has fallen against the dollar by about 7.5% through 2022.
The British pound is suffering from the failure of the Bank of England to control inflation. So far, the BoE has raised rates five times in recent months. But all of these hikes didn't manage to cool inflation in the UK, which reached a 40-year high of 9.0%.
With increasing pressures on the British economy and negative data, the pound's decline against the dollar continued to exceed 9% since the beginning of the year.
The Fed's tightening cycle and relentless rate hikes have supported the dollar. Foreign investors also sell stocks and bonds to store the money they receive in US dollars.
However, the dollar may lose some ground with other central banks rushing to raise rates. Recession fears may also prompt the Fed to halt or slow the aggressive rate hikes to save the already weak US economy. Therefore, the proof of the real strength of the dollar will appear when the rest of the currencies bare their teeth and the US currency remains steady.
The upcoming August inflation data may send mixed signals. The 12-month headline inflation rate is expected to rise to 3.6%, causing concerns for the Biden administration. However, core inflation, which excludes food and energy prices, is projected to decrease to 4.3%, aligning with the Federal Reserve's goals. Past price trends influence both figures, so looking at recent data for a more accurate picture is crucial.
The odds of a final interest rate hike by the US Federal Reserve (Fed) this year have dropped after US job openings hit their lowest levels since early 2021. This has led to a correction in the US Dollar as traders reduced their bets on further rate hikes.
Here we go again, my friends. It’s time to look critically into the future of what trading opportunities September might have in store for us. As always, it is essential to note that the views expressed here are mine and should not be considered financial advice without proper examination.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
Amid concerns of a Chinese economic slowdown, reports of declining investment often overlook China's efficient investment strategy in emerging sectors for long-term growth. China has taken measures to stabilize foreign and private sector investments, like reducing the reserve requirement ratio to boost investor confidence.
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