Importance of US dollar under threat
Kane Davis Cooper – The esteem of the U.S. dollar is under threat as the greenback flags and challengers such as the euro and the Chinese yuan grow stronger.
Even as the North American economy does well and the Fed has indicated that rising interest rates are on the way, investors still remain worried about how and on what timeframe the policies being discussed will actually come to fruition.
Failure of any action on tax reform and infrastructure investment, two of Trumps key election pledges, together with a revolving door for Whitehouse staff and failure to fill many vacant positions have left a bad taste in the collective mouths of investors and has some trading their dollars for other alternatives.
For global investors especially, what is the current status of the dollar? Does it hold the same authority? Many say not and the move away is being hastened by the strength of the euro and the incrementally rising Yuan, two currencies set to gain from any capital flight.
The euro is presently sitting pretty at a thirty month high against the dollar and after the ECB President Draghi spoke publicly twice last week without mentioning any future developments for the bank’s monetary policy.
Higher than expected purchasing managers’ index (PMI) figures combined with selling current account balances for a number of European countries added to the confidence in the euro over the dollar.
There are still some clouds on the horizon for the euro zone with general elections in Italy due next year amidst high unemployment and no clear leader in the race.
The strengthening of the euro is not all good news for the economies of Europe. A weaker dollar makes European goods more expensive to buy in the States, which could affect European exports to the region.
The ECB has its next monetary policy meeting early next month and investors are expecting clearer direction on reducing monetary stimulus at that time.