Financial markets/economy

The king dollar and the currencies most affected by its appreciation

Posted by MoneyController on 22.05.2024

The dollar is as strong against other currencies as we have seen in a long time: but what are the consequences of this strength?

Dollar Index just under 105 points

The US dollar today is between 104 and 105 points, and it maintains a dominant position not only in terms of transactions, but also in terms of value over many other currencies. In particular, it can be noted that after years in which the Dollar Index had been below 100 (ten years ago, for example, it was at 80), today that value has been above 100 points for more than two years. But what are the consequences of this strong dollar for the markets and the global economy?

The devaluations of other currencies against the dollar

As Marco Valsania points out in ‘Il Sole 24 Ore’, more than 60% of the world's 150 major currencies have lost ground against the greenback: ranging from the borderline cases of the Zimbabwean dollar and the Lebanese pound (-81% and -83%) to the currencies of South Sudan, Egypt and Nigeria, which have lost about a third or more of their value (-32%, -34% and -40%); but also countries such as Japan, Argentina (both -9%), Turkey (-8%), Brazil and South Korea (just under 5%) have seen the value of their currencies fall in comparison to the dollar.

Other consequences of the superdollar

The risk is that the strong dollar may contribute to higher inflation in countries that have to import commodities quoted in dollars. In addition, as Valsania writes, in order to avoid capital flight, many countries, especially the so-called emerging countries, are forced to keep interest rates high.

How strong will the dollar remain?

It is impossible to make predictions about the dollar's trajectory: on the one hand, there are those such as Neil Shearing of Capital Economics, mentioned by Valsania, who believe that the dollar's appreciation could slow because of both the slowdown in the US economy and the prospects for recovery in the rest of the world; on the other hand, Valsania also reports the opinion of Goldman Sachs, which sees the US's position of economic and global pre-eminence as one of the structural and most solid factors in the dollar's strength.

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