Once Again, The US Has Become A Mighty Emperor In The World Economics Scenario. Reasons Why

In over nine years, the US dollar is currently on its longest winning streak.

On Friday, the dollar was on track to post its highest week of gains since the winter of 2014–2015—an eighth consecutive week of gains against a basket of other important currencies. Since mid-July, it has increased by 5%.

The rebound follows months of turbulence, which was stoked by worries that the dollar might stop serving as the world’s reserve currency. Following the Chinese-led expansion of the BRICS group of countries to include key oil producers like Saudi Arabia, speculation over the impending de-dollarization of global commerce increased once more last month.

“Rumours of the US dollar’s demise continue to be greatly exaggerated,” James Athey, investment director at asset manager Abrdn, told a news media agency.

A flood of encouraging economic data from the US in recent weeks has boosted the US Dollar Index, which is now at its highest level in six months. This has fueled anticipation that the Federal Reserve will maintain higher interest rates for longer. Higher interest rates typically increase the value of a nation’s currency by luring in more foreign investment since investors expect to receive larger returns.

The economies of China and Europe are, in the meantime, being threatened by storm clouds.

Athey continued, “The US economy continues to show remarkable strength, while things, particularly in China and Europe, seem to be descending into a much more recessionary place.”

Strong Us Economy

The US jobless rate is currently hovering around its 50-year low. After recording an increase for the 32nd consecutive month in August, hiring is still strong. Inflation-adjusted wages are also increasing.

As a result of all the positive news, several economists have increased their growth projections. It now appears more possible that there will be a so-called “soft landing”—when a central bank successfully reduces inflation without sending the economy into recession.

According to Carsten Brzeski, global head of macroeconomic analysis at ING, “the US economy continues to surprise to the upside.” It appears to be more durable than feared.

This should encourage American consumers to keep spending, and it should give the US Federal Reserve more motivation to maintain interest rates at a 22-year high in an effort to contain inflation.

Other Economies Are Struggling

China and Europe are in a precarious economic situation.

Since mid-July, the euro has lost 4.4% of its value and now trades at $1.07. In that time, the Chinese yuan has fallen 2.6%, reaching its lowest level against the dollar in 16 years.

According to Athanasios Vamvakidis, head of G10 FX Strategy at Bank of America Global Research, “the eurozone seems closer to a stagflation scenario” — the dreaded mix of high inflation and little, if any, economic growth — whereas the US may achieve a “soft landing,” he said to a news media agency.

The official statistics body for Europe reduced its estimate of GDP growth for the 20 nations that share the euro on Thursday from 0.3% to 0.1%.

According to official data released on Thursday, Germany’s industrial production declined for the third consecutive month in July, adding to the host of problems facing the continent’s largest economy.