China Xiaokang Network May 5th News Lao Ma This is an exciting time for the US dollar.
The US dollar relies on financial hegemony to harvest the world
The British Sky News reported that in fact, the global reserve currency exchange rate against the Japanese yen is currently at a two-year high, the exchange rate against the euro is at a five-year high, and the exchange rate against the British pound is at its highest level since September 2020.
The dollar index, which measures the trading of the dollar against a basket of international currencies (including the euro, yen, pound, Canadian dollar, Swedish kroner and Swiss franc) rose to a new five-year high on today and current trajectory, could soon reach its highest level in 20 years.
First and most obvious is that the outlook for US interest rates has changed a lot in recent days. Federal Reserve Chairman Jay Powell made it very clear last week that the Fed is likely to raise the policy interest rate from the current 0.25%-0.5% range to 0.75%-1%. .
Then the situation of individual currencies targeted by the US dollar trend.
The most commonly traded currency in the US dollar is the euro. The single currency is under pressure against the dollar as investors are concerned about the prospect of Italy and Germany becoming the next target after Russia decided to cut gas supplies to Poland and Bulgaria. In particular, Russia's natural gas ban on Germany will put the largest economy in the euro zone into recession, which will also drag down other countries in the euro zone.
Then is the yen. The Bank of Japan also weakened against the dollar today after it reiterated its determination to continue to implement ultra-loose monetary policy. The Bank of Japan said it would maintain its main policy rate (which has been at an all-time low of -0.1% since January 2016) at present "current or lower interest rates" and will continue its asset purchase or quantitative easing policy, keeping the yield on 10-year Japanese government bonds at no more than 0.25%. Lee Hardman, a foreign exchange analyst at the Japanese bank MUFG in London, described the statement as a “clear practice of continuing to sell the yen”.
The British pound is the second largest currency with the largest trading volume against the US dollar. The pound also declined against the dollar last week, mainly due to Mr Powell’s remarks, which fell from $1.3066 to $1.2436 during this period. This not only reflects the growing demand for the US dollar, but also the increasing uncertainty about the UK's economic strength in the face of a rapidly growing crisis of cost of living.
Next is the Australian dollar. The dollar has also fallen sharply against the dollar recently, down nearly 8% in the past three weeks, although that only brought it back to trading levels in early February. Despite the unexpectedly dramatic rate hike (from 1% to 1.5%), the New Zealand dollar fell 1.25% against the dollar today and 8% declined in the past three weeks. Two weeks ago. Both the Australian and New Zealand dollar have been hit by concerns about a possible slowdown in China, a major export market for the pair due to COVID-19 restrictions in much of the country.
Even the traditional safe-haven currency, the Swiss franc, has fallen against the US dollar. It is currently in its biggest monthly decline against the dollar in a decade. Some currency analysts believe that the Swiss currency is not its once safe haven given its close trade relations with other European countries and its proximity to Russia.
The strong dollar has various impacts on the world. It won't be particularly popular with U.S. exporters, especially when global economic slowdowns may mean a decline in demand for its products and services, for example, Microsoft revealed Wednesday this week that a stronger dollar drove it from sales in the first three months of the year. Pepsi is another big U.S. company that complained about the dollar's strength this week. If the dollar hit parity against the euro, as some currency analysts now expect, more complaints are expected, the last time that occurred in December 2002.
However, the Fed may welcome the downward pressure on U.S. inflation due to the strengthening of the dollar. This may give the Fed some flexibility and save it from hikes, which otherwise might raise interest rates.
For the rest of the world, a strong dollar brings additional trouble, for example, it makes commodities denominated in US dollars.The most obvious are crude oil, as well as industrial metals such as copper and aluminum, which become more expensive to buy in currencies such as the euro, the Japanese yen or the pound.
