Dollar Holds Its Sway…

The US Dollar, as expected, maintains its sway over the currency markets, with the strength against the majors remaining unchallenged. While the strength of the Dollar has been mainly due to the change in the Fed’s stance starting with the soon to be implemented normalization of liquidity by tapering of bond purchases. The end result may be hike in rates as inflation gathers pace and inflationary expectations remain elevated. This has lent support to the US unit in the last few months. But there are certain peculiar issues that may support Dollar again. The tensions relating to Brexit between the EU and the UK seems to be escalating now, with the UK facing a higher tariff in trade in the coming days. The issue is based on trade who is going to manage the Northern Ireland Protocol, which was actually created to smoothen the things relating to trade flows. The UK today believes it is for the EU to take care of the requirements of the protocol and not the UK, and many UK leaders have said that if required they may invoke the emergency provision of Article 16 of the Brexit Agreement to tide over the situation if EU insists that UK should own the responsibility. This has kicked up a fresh storm and this may weaken the Pound Sterling further. The Euro too faces a similar predicament against the Dollar.

The only currency which remains stable to stronger against the Dolar is the Yuan, which for reasons of China’s trade surplus with the US and the fabulous growth of its trade with the US in the last two years, remains
well bid.


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