July 7, under the combined effect of multiple factors such as increased risk of global recession, tough monetary policy of the Federal Reserve and weak euro, the US dollar exchange rate was pushed to its highest level in about 20 years. On that day, the dollar index reached its highest point of 107.13 in the morning. Although it fell slightly in the afternoon, it remained high overall.
U.S. dollar rose against all G10 currencies, with the yen being hit the hardest because the Bank of Japan has always adhered to monetary easing policies.
. Due to factors such as the risk of global economic recession and the surge in natural gas prices, the euro fell to a two-year low and is about to remain the same as the US dollar. According to Deutsche Bank forecast, if the Fed continues to raise rates significantly, the euro against the US dollar will probably fall 7% to 0.95.
Historical data shows that the US dollar often rises a few months before the first rate hike in the entire interest rate hike cycle, and then falls back after the arrival of subsequent interest rate hike policies. However, so far, the dollar has shown little signs of slowing down, with the dollar index rising 8% since the Fed's first rate hike on March 16.
Due to the risk of a global recession, many investors sold gold, and the dollar exchange rate was further boosted because the gold price was negatively correlated with the US dollar. Moreover, compared with the euro zone, the United States has been hit harder by the energy crisis, so the Federal Reserve can continue to tighten its policies, which improves the dollar's safe-haven ability.
Investors in the international currency market are optimistic about the outlook for the US dollar, with a net bullish bet on the US dollar of US$13.62 billion.
. Due to a large amount of funds pouring into the US dollar, exchange rate of small and medium-sized countries such as Hungary and Colombia were hit. The Deutsche Bank's currency volatility index, which measures expectations for foreign exchange market volatility, was the latest at 11.09, the highest since March 2020.
Although the rising dollar exchange rate can reduce the price of U.S. imported goods and thus curb inflation, it also reduces the competitiveness of U.S. goods in the world market and has a negative impact on the final profits of U.S. multinational companies that need to convert their overseas profits into U.S. dollars.
In addition, the high exchange rate of the US dollar will seriously impact the world economy. Since global trade is still mainly settled in US dollars, the appreciation of US dollars means that other currencies are depreciating relatively, thereby increasing costs in other countries and further exacerbating inflation . Moreover, for countries with resource shortages, a rising import cost will expand the trade deficit of and further aggravate the depreciation of their own currencies.
The United States can even "harvest a wave of leeks" through the appreciation of the US dollar. Because the debts of many developing countries' are settled in US dollars, the appreciation of US dollars means that the United States can also make a difference in interest.
USD continues to be at a high level. While alleviating the pressure on the United States itself, it increases the risks and costs of other countries. US dollar hegemony may have become a major obstacle and uncertain factor for the development of the world economy.
text|Wei LaiQuo|Huang Zixin Review|Huang Zixin
