It’s been a rocky few years since the pandemic essentially flipped what we understood about the current market upside down. Everything from retail to healthcare was brought new challenges due to the onslaught of the rapidly changing virus affecting how we move, spend, and generally live the past 3 years.
This has translated to top governments applying different fiscal policies and economic programs that were meant to support their countries in trying times. Business grants were given out to medium and small businesses suddenly impacted by less demand and stimulus checks were provided to individuals whose livelihood were largely affected by the downturn on economic activity. While for a while this mean that the dollar was relatively volatile in terms of value on the global stage, it has recently found new footing as one of the strongest currencies in the market now. In this article, we will look at whether this is a trend to stay or simply one of many flukes in a very irregular market for the US dollar.
Quantitative Analysis: Highest in Five Years
Even if it is a relatively short-lived peak, the fact that the US dollar currently sits at the highest USDX index level in the past five years is nothing to scoff at. While the global market is currently reeling in from different issues that plague their own home currencies, the dollar measured against a basket of some of the biggest currencies in the world is currently showing a value of 102.56, or roughly a 2.56 index increase from the average global value.
Moreover, much of this climb has occurred within the last six months alone, with the upward trend gaining much more momentum in February, 2022.
Qualitative Analysis: Hawkish Fed Fueling Value
A large motivator of what is currently fueling the US dollar value is the very hawkish Federal Reserve regarding their current fiscal policies to curb the growing inflation. As the world continues to change around COVID-19 and the hopeful return of everyday life, consumer demand has reached an incredible high. This has, in-turn, moved the Fed to increase interest rates by 50 basis points as well as develop strategies to reduce its overstuffed balance sheet.
This means larger returns on US Treasury bonds as well as increased investor interest in US dollar denominated investment vehicles to ride on the returns a stronger dollar can get them.
While some investors might be worried that the peak has long since passed, there remains a long runway for the dollar to maintain its current value as the US continues to grapple with different programs that attempt to curb the mounting inflation driving up prices. If you’re an investor looking for a relatively safe store of value, the dollar is poised to be a pretty good investment vehicle with all things considered.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only