Why is the US Dollar Falling

The US Dollar – Steadily Fallen

The US dollar, the symbol of American economic strength seems to have steadily fallen this year and since January, the index value of the dollar that tends to track the dollar against six main global currencies is said to drop by around 10%. It had pushed lower recently as demand for other safe-haven assets usually a category comprising of the US dollar, rising amid sabre-rattling between North Korea and the US.

The dollar which had rushed in 2014 while the economy of the US had gained strength is hardly in risk territory. The index has been running only a bit lower than it had been a year back. However last year, key US economic date seemed weak and it is left to be seen what lies behind the decline this year.

Driven by an improved economy in Europe, this seems to be good news story in some ways. In 2014, the euro had lost ground against the dollar when central bankers had accepted a stimulus program when the US had begun to move away from the stimulus policies.

 As the Eurozone economy tends to improve now and the European Central Bank views an end to the stimulus, the currencies have begun to move closer together and in June the election of pro-EU Emmanuel Macron in France had made its contribution to confidence in the Euro.

Dollar’s Loss/Euro’s Gain

The dollars’ loss is the Euro’s gain which is now worth over $1.17, up more than 10 cents since the end of last year. The dollar seemed to have lost ground against several other currencies inclusive of the Japanese Yen, the Mexican peso as well as the Swedish Krona.

 The British pound also had rushed after the Brexit vote had in recent months regained some of its power against the dollar which is now valued at around $1.30 up from $1.22 in March. Sameer Samana, a global quantitative and technical strategist at Wells Fargo based in St. Louis, Missouri, had commented that this kind of broad based decline portrayed that it is really people moving away from the dollar instead of just moving towards these other currencies and the one reason for the same was Donald Trump.

Analysts have traced the surge of the dollar in the final months of 2016 in his victory that had fuelled expectations of tax reductions or infrastructure investment, spending estimated, to drive demand for the dollar.

Retreat Portrays Recalculating

They have now stated that the retreat portrays traders recalculating since Mr Trump’s economic agenda tends to stand. An enduring investigation into ties between Russia and the Trump campaign tends to cast a shadow over his administration and the apprehension over Mr Trumps’ erratic statements together with foreign policy clashed including with North Korea has added to it.

Mr Samana had stated that if people feel like, there is greater political uncertainty, they tend to vote with their dollars. Increase in interest rates tends to be traditionally connected to stronger currencies since the higher rates are said to draw investment.

 Since December 2015, the US central bank has elevated the interest rates four times and predictable understanding calls for another in December. However, Janet Yellen, Federal Reserve Chair had recently commented that even supposing future hikes, the interest rates would probably remain historically low for some time.

Dollar retreats from 14-year highs, investors unpack Fed minutes

 
As the value of dollar fell against euro and yen the investors became cautious regarding increase in bets on greenback without any hints with respect to the economy of U.S. and the hike in rate of interest. The very first day of trading in 2017 for several investors was full of expectations as they met with U.S. manufacturing data which was way different from the previous days. Since, the depreciation of dollar was the highest till date.

The Federal Open Market Committee that met in December, had warned everyone of the risk of increase in inflation after President Donald Trump’s proposal of fiscal influence standards that would shift dollar and will push up euro to $1.0499, which is its highest value declared. But as the investors changed their ways, euro started tracing profits to some extent.

Joe Manimbo, a senior market analyst at Western Union Business Solutions in Washington has intended that this decrease in the value of dollar in comparison to euro and yen have led to mixed reactions as in a way it sounds optimistic in terms of the economy, and on the other way it suggests a demoralized power of dollar.

Research have shown that the last time the value of euro increased by 0.6 percent at $1.0465. The current data shows that such a quick increase in the value of euro in December was unexpected and the surveys prove that due to this the growth in business have reached new heights in more than five years.

The dollar was last seen to be down by 0.2 percent against yen at 117.51 after an overnight hike of 118.17 yen. After Trump was elected as the President dollar has increased against many currencies with an expectation that administration under him will push up inflation, leading the Federal Reserve to follow up through a hike in rate of interest.

The Mexican peso was found to be striking the lowest level against the greenback, it fell more than 2 percent to 21.62 pesos per dollar with an intention that Trump’s policy might allow the protectionist U.S. trade policy to become a reality.

The Chinese yuan was increased to 6.8707, which was its highest value recorded against dollar since 6th December. As a result China went into both onshore and offshore markets to increase the depreciating yuan for the second time. China was also found to set the onshore middle point rate much lower than the market actually expected from it which lead many investors leaving the ground, who were intending more upcoming weaknesses in the currency, positioning in the negative direction, this was propagated by Greg Anderson, who is the global head of foreign exchange strategy at BMO capital Markets.

Thus, we can relate that how the marketing strategies as well as the position of investors are subjected to change with fluctuating value of currencies that on a longer run effects the entire economy of the country both positively and negatively.

The Economic Trend and Prospects of Dollar

In terms of profitability, companies in Europe have seen their profits grow by an average of 13% from 1998 to 2008, as against nearly half (7%) to their American rivals. And if the U.S. financial sector is much more comprehensive and profitable than that of Europe, the crisis of 2008 showed that he can destroy in a few months the entire stock market value created in a decade. In the end, and above all, the huge weakness of U.S. growth model is that it is based on debt. Europe obviously has its own debt problems, but its two engines, Germany and France, keep public finances healthier than the U.S. by 2014, the IMF provides. The trade balance in Europe has remained strong, primarily because it is facing competition from Asia in manufacturing and service sectors, the Europeans were able to focus on products with high added value, such as luxury goods and precision tools. The Americans, losing their competitiveness in the manufacturing sector, have carried on consumer credit.

In the U.S., we like the easy is being printed and devalued. And markets are applauding. The fact that it has a high cost for the future goes out the window. This policy operates in the markets' perception that the idea to use credit produces wealth. But this "truth" is leveled at around a beautiful fable only be enriched when producing goods and services and a debt that has accumulated leave mine GDP growth and competitiveness.

And if the return to growth post-2001 has been sharpest in the United States, because Europe has calculated its growth more restrictive than the United States, Underestimating the reality, while United States, conversely, inflated their numbers. And again, U.S. growth has come at a future cost much higher than Europe, which has boosted its economy without stimulus. The United States has instead introduced a fiscal stimulus and monetary policy extremely lax, who only prepare the huge destruction of value in 2008. And since 2009, the same fiscal and monetary doping was replaced in even larger proportions ... The headlong rush is obvious.