The return of the dollar
“In the last four months alone, it [the US dollar] has soared by more than 7%” - By Mohamed A, El-Erian, Chief Economic Adviser, Allianz
Below summary by Anthony O'Brien
The US dollar is on the move and two factors are working in its favour, particularly when compared to the euro and the yen.
First, the United States is consistently outperforming Europe and Japan in terms of economic growth and dynamism – and will likely continue to do so.
Second, after a period of alignment, the monetary policies of these three large and systemically important economies are diverging, taking the world economy from a multi-speed trajectory to a multi-track one. Indeed, whereas the US Federal Reserve terminated its large-scale securities purchases, known as “quantitative easing” (QE), last month, the Bank of Japan and the European Central Bank recently announced the expansion of their monetary-stimulus programs.
Yet the benefits of the dollar’s rally are far from guaranteed. While the US economy is more resilient than Japan and the Europe, sudden large currency moves tend to translate into financial-market instability.
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Frequently Asked Questions about this Article…
The US dollar has surged by over 7% due to the United States' strong economic growth and the divergence in monetary policies compared to Europe and Japan. The US economy is outperforming these regions, and the Federal Reserve has ended its quantitative easing program, unlike the Bank of Japan and the European Central Bank, which are expanding their stimulus efforts.
The US economy is consistently outperforming Europe and Japan in terms of growth and dynamism. This economic strength is a key factor in the recent rise of the US dollar against the euro and the yen.
Divergent monetary policies have contributed to the US dollar's rise. While the US Federal Reserve has ended its quantitative easing program, the Bank of Japan and the European Central Bank are expanding their monetary stimulus, leading to a stronger dollar.
A strong US dollar can lead to financial-market instability, as sudden large currency moves can create volatility. While the US economy is resilient, these fluctuations can pose challenges for investors.
The end of quantitative easing by the US Federal Reserve has strengthened the dollar. This policy shift contrasts with the ongoing stimulus efforts in Japan and Europe, contributing to the dollar's rise.
A rising US dollar can indicate a strong US economy, which may attract investors seeking stability and growth. However, it's important to be aware of potential market volatility associated with currency fluctuations.
The monetary policies are diverging because the US has ended its quantitative easing program due to its strong economic performance, while Europe and Japan are expanding their stimulus efforts to boost their slower-growing economies.
Everyday investors should consider the potential for market volatility due to the strong US dollar and divergent monetary policies. It's important to stay informed about economic trends and adjust investment strategies accordingly.
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