Dollar Surges Again…

The Dollar index was at 104.85 on May 12 22, and thereafter, it pulled back to 102.08 level later in the month. But the index surged thereafter touching 104.28 by June 20, 2022. The movement in the Dollar Index demonstrates the strength in the US unit, and the likely trajectory in the coming months. The very fact that almost every other economy is plagued with inflationary pressures and falling economic growth rates, brings to the fore the safe haven status of the US Dollar in the face of uncertainties. What has added to this positive sentiment is the emphatic action on interest rates from the Fed which instilled confidence in the markets that the inflation combatting mode will bring to a halt the price rise faster than expected. Though the ECB had announced the desire to bring in rate action nothing concrete has been materialized as yet. The worst loss against the US Dollar was witnessed in Japanese Yen, mainly rattled by low interest rates, low rate of growth and a not so buoyant local demand. The currency may lose more ground as growth concerns escalate and as demand remains subdued. The Yuan is weaker compared to its position about six months back. The resurgence of covid fears, the shut down in important provinces, the impact of the domestic conditions on trade etc. resulted in a weaker currency. The Indian Rupee has been adversely affected mainly by the FII exit from the equity market, and the deteriorating trade balance. The government finances may also be a matter of concern for overseas investors given the rising expenditure which may lead to dependence on the markets for additional resources.

 

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