The dollar has improved recently due to escalating tensions over global growth and rising Treasury yields. In recent days, the dollar index appeared to The Wall Street Journal It reached its highest level since September 2020. The index measures the US currency against a basket of rival currencies, which has been on a steady rise since June.
A strong dollar has the ability to curb gains in stocks and other risky investments. S&P 500 companies generate 40% of their revenue outside the United States, according to set of facts. When the dollar strengthens, the value of money earned abroad decreases. Companies in emerging markets and other countries are likely to struggle to repay their large dollar-denominated debt.
A stronger dollar can be a kind of wrecking ball. Overall, investment manager James Athey of Aberdeen Standard Investments says it has pressured global financial conditions.
What pushed the dollar the most was the expectation that the Federal Reserve (Fed, US central bank) would act sooner and more aggressively than expected to remove economic stimulus.
Global supply chain constraints, rising energy prices, and industrial shutdowns in markets such as China and the United Kingdom have also weighed on growth prospects.
The global reserve currency tends to perform well in two scenarios: when the global economy is bad, and investors are sheltering in safe haven assets, and when the US economy is doing well compared to others, causing traders to snap up dollar-denominated investments.
“Markets are more cautious and nervous about the risks of a further slowdown,” says Lee Hardman, foreign exchange analyst at Japan’s Mitsubishi UFJ Financial Group. He fears rising global energy prices will hurt consumers and businesses while raising concerns about inflation. Source: Dow Jones Newswires
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