The mighty US dollar is getting stronger by the day. The US Dollar index has held itself by 1.5% in comparison with other currencies after the Jan 30 meeting by the Federal Reserve. For many, this comes as a surprise, as the perception was that the Fed was killing the US dollar after its Chairman Jerome Powell indicated that the last month’s rate hikes would be the last and an increase will not happen anytime soon. Powell had earlier in a statement mentioned that the Central Bank had to be patient and had to adopt a wait and watch approach to see what happens to the economy in the US. Many experts thought that it would impact the dollar, but obviously, it has not, as a lower rate of interest meant a weak economy and vice-versa.
Though an increase of 1.5% may sound trivial, it is not so in the sleepy world of currencies, and it is considered to be reasonably high. The US dollar has not gone the Japan way like Yen in the past decade losing its way due to lower rates, deflation and a slow economy. The dollar is up a little higher year-to-date.
China slowdown helping the dollar:
Many experts including global head of currency strategy and market research at FXTM Jameel Ahmad in a report said that the US dollar is attractive to the investors as the economy in the US is in good shape. He further added that investors are wary of the swing in fortunes in the Chinese economy and if the growth in China reduces further then the dollar will continue to rally. He said, ‘those who are fatigued from yo-yo trade headlines about the US and China are now focusing on China’s moderating economic conditions remain a major overhang for the global growth narrative.’ The dollar is being called the cleanest dirty shirt. Experts also believe that even if the Chinese growth reduces further and if it does hit the US, they expect America not to be impacted by it at all.
Another expert Boris Schlossberg who is the MD of FX Strategy had this to say about the dollar ‘It is not a question of people flocking to the dollar because they want to. It’s that the data from China and Europe and elsewhere have just gotten markedly worse’.
Meanwhile, the worst hit due to dollar getting stronger is the US blue-chip multi-national companies as a strong dollar means less revenue in international sales.