U.S. Policy Key For Dollar Stuck Below One-Year High. The trade conflicts swirling in the global economy due to Trump’s unilateral actions are a major cause of concern for investors looking to reap some of the best stock market gains in over a decade. The congressional testimony held on July 17th, 2018 for the Chairman of the Federal Reserve, Jereme Powell was supposed to act as a major piece of information for investors and to the world market as a whole. But it was a non-event where the chairman was skillful in answering questions especially about monetary policy. His main aim seemed to be not making any sudden statement which might result in any major market moves. The major point that came out was that Fed is poised to keep hiking the interest rates in the foreseeable future.
It is the trade tensions that are posing the major downside risk for the US economy and it can really weigh down the economy’s capital spending apart from hurting in other areas. As per Bank of America Merrill Lynch’s recent monthly poll, over 60% of the investors fear trade wars as the biggest risk for markets.
The changes in the dollar price
In June 2018, the Dollar against the six major currencies rose to its highest of 95.53 in the past 12 months. Talking of the pace of the world economy as a whole, the growth has been reducing. The same holds true in the case of the US. However, it is expected that the trade tensions could lead to an appreciation in the value of the US dollar initially. But economists are vague about the long-term repercussions in the dollar for such short-sighted actions. Would US dollar maintain its status as the global currency or more open currencies like Euro would be successful in taking its place? That is a trillion dollar question.
The stress about the dollar
The change in the value of the dollar has become a major concern due to the worsening trade conflicts between the two major economies of the world namely the USA and China. Yet again, the International Monetary Fund warns the world economy about the decline in growth prospects if the current scenario persists. There are two ways that this trade conflict of the US with China may shape up into: one could be the excessive increase in rates of import tariffs and the other way could be a pause in the growth of the world economy.
The Takeaway
Powell’s testimony was paid attention to draw information pertaining to the increase in interest rates, especially by the investors. Powell remarked that the economy is treading on a path of steady growth and warned of the recent tariffs posing a threat to the growth of the economy but also dismissed the concerns that everyone had about the trade tariff war. But it seems that dollar’s recent strengthening is going to be maintained at least in the medium term. With hikes in interest rates, the US economy currently at strong employment levels, and general investor anxiety for emerging market means that US treasury would remain the top haven for institutional investors globally.
