At least the stronger dollar is likely to help inflation. DXY is up 9.11% in 2022


DXY hits its highest level since 2017 today

The DXY or American dollars

American dollars

The US dollar (symbol $, code USD) is the fiat currency of the United States of America (USD) and the most traded currency in the world. It was introduced to the United States in the late 18th century, with paper notes not being distributed until the following century. The US dollar, also known informally as the greenback, is the world’s primary reserve currency, largely due to the importance of the US economy on the world stage. Once backed by gold (in the 1900s), the USD is now a purely fiat currency, that is, not backed by a physical commodity. The old gold standard aligned with the US dollar made gold and silver legal tender in the United States, with the guarantee that 1 USD could be converted into one and a half grams of pure gold 24 carats. However, the link to gold was eventually abolished by President Richard Nixon in 1971. Since the removal of the gold standard, the US dollar has become the world’s premier reserve currency. This means that foreign nations hold large amounts of their cash reserves in USD, which accounts for around 65% of global foreign exchange reserves. How to trade the US dollar? traded in pairs. Any retail broker offers exposure to USD in many trading pairs, given its popularity and liquidity. The USD is involved in the majority of the most traded currency pairs, such as EUR/USD, USD/JPY, GBP/USD and USD/CHF, known as the “four majors” , and “commodity pairs”. , i.e. AUD/USD, USD/CAD and NZD/USD.

The US dollar (symbol $, code USD) is the fiat currency of the United States of America (USD) and the most traded currency in the world. It was introduced to the United States in the late 18th century, with paper notes not being distributed until the following century. The US dollar, also known informally as the greenback, is the world’s primary reserve currency, largely due to the importance of the US economy on the world stage. Once backed by gold (in the 1900s), the USD is now a purely fiat currency, that is, not backed by a physical commodity. The old gold standard aligned with the US dollar made gold and silver legal tender in the United States, with the guarantee that 1 USD could be converted into one and a half grams of pure gold 24 carats. However, the link to gold was eventually abolished by President Richard Nixon in 1971. Since the removal of the gold standard, the US dollar has become the world’s premier reserve currency. This means that foreign nations hold large amounts of their cash reserves in USD, which accounts for around 65% of global foreign exchange reserves. How to trade the US dollar? traded in pairs. Any retail broker offers exposure to USD in many trading pairs, given its popularity and liquidity. The USD is involved in the majority of the most traded currency pairs, such as EUR/USD, USD/JPY, GBP/USD and USD/CHF, known as the “four majors” , and “commodity pairs”. , i.e. AUD/USD, USD/CAD and NZD/USD.
Read this term the index peaked in December 2016. The index broke through the 2020 high at 102.99. It is currently trading at 103.094 after hitting a high of 103.282 (see weekly chart above).

From January’s low to today’s high, the index is up 9.11%. Since the December 2020 low, the greenback is up 15.38%.

The rise is in reaction to the strong growth in the United States, the expected slowdown in growth from the ECB due to the war in Ukraine and the strong rise in energy. The slowdown in the Chinese economy is also a drag on economies in general. They fight Covid and the impact of lockdowns.

When there are disparities, you get trending markets in the currencies

Currencies

Currencies are generally a widely circulated form of money, being the primary medium of exchange when it comes to buying and selling goods and services. These are often issued by a specific government or set of governments, in the form of paper notes and coins. Other forms of currencies include previous metals such as gold and silver, and digital currencies such as Bitcoin. Currencies serve as the backbone of the economy of the country or countries, due to the perception of value held by the people who use that currency. For example, the US dollar (symbol $, code USD) or the British pound sterling, (symbol £, code GBP), also called fiat money, because they are not tied to any specific asset, such as gold or money. These metals were traditionally used as the primary means of payment, as they had real and real value. Even after the introduction of paper banknotes, many countries maintained a gold standard for much of the 20th century, meaning that one unit of currency could be exchanged for a fixed amount of gold. How to exchange currencies? The modern world, with the invention of electronic networks, computers and the Internet, has allowed the transfer of money to occur almost instantaneously. It also spawned a new era in currencies, including digital currencies, such as Bitcoin and Litecoin. Not backed by any government, but based on a complex set of mathematical software algorithms, the ubiquity of the internet has sparked interest and adoption in digital currencies, while offering relative anonymity. Digital currencies can now also be traded online, through exchanges and brokers, similar to foreign currency trading, known as the forex market. Forex is the largest market in the world, with a turnover of more than 5 trillion dollars per day, where fiat and floating currencies are bought and sold against other currencies, such as the euro against the dollar (EUR/USD) and the pound sterling against the Japanese yen (GBP/JPY).

Currencies are generally a widely circulated form of money, being the primary medium of exchange when it comes to buying and selling goods and services. These are often issued by a specific government or set of governments, in the form of paper notes and coins. Other forms of currencies include previous metals such as gold and silver, and digital currencies such as Bitcoin. Currencies serve as the backbone of the economy of the country or countries, due to the perception of value held by the people who use that currency. For example, the US dollar (symbol $, code USD) or the British pound sterling, (symbol £, code GBP), also called fiat money, because they are not tied to any specific asset, such as gold or money. These metals were traditionally used as the primary means of payment, as they had real and effective value. Even after the introduction of paper banknotes, many countries maintained a gold standard for much of the 20th century, meaning that one unit of currency could be exchanged for a fixed amount of gold. How to exchange currencies? The modern world, with the invention of electronic networks, computers and the Internet, has allowed the transfer of money to occur almost instantaneously. It also spawned a new era in currencies, including digital currencies, such as Bitcoin and Litecoin. Not backed by any government, but based on a complex set of mathematical software algorithms, the ubiquity of the internet has sparked interest and adoption in digital currencies, while offering relative anonymity. Digital currencies can now also be traded online, through exchanges and brokers, similar to foreign currency trading, known as the forex market. Forex is the largest market in the world, with a turnover of more than 5 trillion dollars per day, where fiat and floating currencies are bought and sold against other currencies, such as the euro against the dollar (EUR/USD) and the pound sterling against the Japanese yen (GBP/JPY).
Read this term.

Why?

Like interest rates, which act as a counterweight to a stronger or weaker economy, the value of one currency relative to another currency influences the economy of those respective countries.

A stronger currency relative to another tends to slow growth and inflation in the stronger country, and increase growth and inflation in the weaker economy.

Generally speaking, about 40% of all revenues of S&P 500 companies come from outside the United States, primarily from Europe and Asia.

All things being equal, when the dollar rises against the EUR, JPY, GBP or CNY – as it did in 2021 and 2022, it hurts in two ways:

  • The prices of products made in the United States are becoming more expensive for customers in Europe, Japan, the United Kingdom, China, etc. This is expected to slow economic growth and
  • Goods that sell overseas fetch fewer dollars and eventually lead to lower revenue and profits in quarterly financial reports.

Conversely, for the euro zone, Japan, the United Kingdom and China,

  • The prices of their foreign-made products become cheaper for customers in the United States, and
  • Goods from these foreign countries fetch more Euros, Japanese Yen, British Pounds and Yuan and will eventually lead to higher revenue and profit on quarterly financial reports.
  • Thus, inflation in the US has a stronger headwind on the dollar (downward bias), and there is also a slowdown in overall economic activity (all other things being equal).

    Meanwhile, in the foreign country, the dynamics are the opposite. Inflationary pressures are increasing, as is growth potential. It’s all things being equal.

    Of course, there may be slippage caused by things like the supply chain that may delay the price response or the inelasticity of demand, i.e. the American consumer may not worry about the 10% higher cost of its Italian-made leather goods.

    Conversely, European consumers may be shaken by the sharp rise in energy prices to find that American products are cheaper.

    Buyers and sellers in the respective countries may also not pass on the impact of the currency to consumers (up or down).

    So it’s not a perfect science.

    However, it can and should have an impact, until there is more balance and potentially movement in the other direction.

    The Federal Reserve meets next week, and although it does not comment on the value of the US dollar. This is controlled by the US Treasury.

    Still, I wonder if the Fed Chairman (and others) might start to include the rising dollar (along with higher interest rates) as a counter-inflationary force that will lead to a slowdown in the inflation in the future?

    PS. A weaker currency (i.e. EUR) also makes traveling there more affordable for US residents (it’s cheaper to go to the UK and Europe now), while reducing travel by foreigners to the United States (the dollar is expensive).


    cnbctv18-forexlive-benzinga

    Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
    Back to top button