• News
  • Celebrities
  • Finance
  • Crypto
  • Entertainment
  • Travel
  • Health
  • Others

Can USD Remain Strong Until The End Of 2022?

This is the most powerful dollar in 20 years. Inflation and political unrest have increased demand for the world's reserve currency. Will the dollar be able to increase while the Fed fights inflation, or will post-pandemic supply shocks and geopolitical schisms harm it? Since Russia's invasion of Ukraine, the currency has gained about 9%. The DXY dollar index achieved its highest level since 2002 on Monday and its trading on foreign exchange markets is higher than ever.

Monetary policy will be difficult to establish. The Bank of England, the Reserve Bank of Australia, and the Reserve Bank of New Zealand all raise interest rates in response to rising consumer prices, which restrict liquidity and destroy demand. They are concerned that economic development will slow and that inflation will devalue the currency. When there is less money, the US dollar strengthens. It will not fall further unless global growth improves.

The US Federal Reserve declared last Monday that its primary goal is to combat four decades of inflation. In six months, US inflation jumped from "transient" to "far too high." The Fed tightened and the dollar soared as CPI rose to 8.5% in March 2022. The Fed boosted interest rates by 25 and 50 basis points in March and May, respectively. In June, July, and September, we anticipate another 50 basis point hike. The benchmark rate will be 3% by early 2023.

Us-inflation
Us-inflation

The Fed cannot stifle the economy without triggering a recession

Jerome Powell highlights the importance of normalizing monetary policy by raising interest rates to slow the economy and reduce consumer spending. The US economy remains solid, growing at a 3.4% annual rate in the first quarter of 2022. The April unemployment rate was 3.6%. This signifies that everyone is working. Wages are affected by this. The participation rate has fallen to 62%, the lowest in three months, while wages have increased by 5.5%. Statistics will make the Fed's work more difficult. According to May 11 figures, the headline inflation rate in April was 8.1%.

The Fed cannot stifle the economy without triggering a recession. Despite rising interest rates, its balance sheet can only be reduced to USD 7 trillion by 2024. Each month in June, 47 billion USD will be eliminated. It will be $95 billion by September.

The shock of Powell

When US inflation reached this level, Paul Volcker was the Fed's chairman. Volcker served under Carter and Reagan from 1979 until 1987. He used the "Volcker shock" to stop double-digit inflation in the US. In October 1979, he warned that "the American standard of living must fall" and raised interest rates to 20%.

In 2022, the Fed shifted from quantitative easing (QE) to quantitative tightening (QT), decreasing QE and raising borrowing costs. This took three months. Investors are concerned that QT will be implemented too late, leaving the Fed with little choice but to raise interest rates so quickly that they will not have time to assess how each hike affects the economy. It has the potential to spark a recession.

The Federal Reserve has never slowed the US economy by 4% without causing a recession

The Federal Reserve has never slowed the US economy by 4% without triggering a recession. The Fed must choose between risking a recession and allowing inflation to exceed targets through 2023. The Fed will almost certainly fight inflation.

Recession
Recession

Short-term and long-term

Dollar demand is boosted by global financial liquidity and economic growth. In the medium term, the dollar appears to benefit from Europe's deteriorating economic outlook and the world's declining GDP, while China's lockdowns create new supply shocks. It was anticipated at the start of the war that a long battle in Ukraine would reduce energy supplies but not stop oil and gas flow.

The European economy is expected to suffer if Russia cuts off gas supply and the EU bans Russian oil imports. All of these factors promote dollar demand. Despite the fact that the Fed is raising rates swiftly, the global economy is faltering, and consumers are becoming less risk-averse, we continue to favor the dollar.

When the dollar climbed rapidly against other major currencies, it was frequently followed by periods of stability. When global growth starts up again in 2023 and the Fed slows down its rate hikes, the dollar may fall from where it is now.

Currency

The United States dollar is the most commonly used currency in trade, finance, and reserves. The dollar will account for approximately 40% of all international payments in 2021, the euro 37%, and the pound 6% and the Chinese yuan was used in 3% of all global transactions.

Some investors are concerned about how long the dollar will be the world's reserve currency following the Ukraine conflict. After the United States and its allies imposed sanctions on Russia, making it more difficult for the central bank to access its reserves, people began to consider other options. China, India, and Brazil may seek trading alternatives to the dollar.

This concept is lacking in alternatives. Since 2009, the dollar's share of global reserves has fallen from 65% to 58%. The eurozone's share, which was once a danger to the dollar's dominance, has also fallen. Over the same time span, the euro's share fell from 28% to 20%.

The Chinese currency's proportion of authorised reserves has increased since 2017, although it will still be low at the end of 2022, at 2.8%. Even if the yuan were to challenge the dollar's dominance, its financial markets are limited to outside investors, and they may only purchase a limited number of assets with it.

Even if the West's break with Russia becomes permanent and the globe becomes more varied, the dollar will almost certainly remain the most important currency for the time being.

About The Authors

Alberto Thompson

Alberto Thompson - I live in Vancouver, Canada, and work as a web developer and graphic designer. Back end programming (PHP, Django/Python, Ruby on Rails) to front end engineering (HTML, CSS, and jQuery/Javascript), digital usability, user interface, and graphic design are all areas of web development where I spend my days. I'm a huge fan of web creation and design in all of its forms, as well as assisting small businesses and artisans with their online presence.

Recent Articles

  • Nanotechnology - What Is The Reason For The Uproar?

    Nanotechnology - What Is The Reason For The Uproar?

    The terms "nanometer" and "technology" are what were originally combined to form the phrase "nanotechnology." This word is used to indicate a broad variety of recent technological breakthroughs in many different scientific and technical fields, including but not limited to electronics, mechanics, biology, medicine, chemistry, and physics.

  • Escherichia Coli - Effects And Advances On Recombinant Protein Expression

    Escherichia Coli - Effects And Advances On Recombinant Protein Expression

    Escherichia coli is used to make recombinant proteins. The world's most widely utilized cell factories and expression platforms. High-level heterologous protein productions can be achieved using a variety of molecular tools and processes, such as expression plasmids, modified strains, and culturing strategies. Recombinant protein production in microbes has revolutionized biochemistry.

  • Biodiversity - Underestimating Future Challenges Of Evading A Dreadful Earth

    Biodiversity - Underestimating Future Challenges Of Evading A Dreadful Earth

    Human consumption, climate change, biodiversity loss, and population growth are all projected to worsen during the next several decades, with long-term consequences that might last for millennia. Due to human activities, Earth's capacity to support complex life is fast diminishing. In spite of the fact that human civilisation has been disintegrating for millennia, the mainstream refuses to accept this loss.

  • Wynton Harvey - Youngest Son Of Steve Harvey

    Wynton Harvey - Youngest Son Of Steve Harvey

    Whether you like it or not, having a famous parent will eventually put you in the spotlight. The family also receives all the public attention they do, and soon you find yourself in the spotlight. The situation of Wynton Harvey is the same as everyone else's.

  • Dream Of Being Half Dressed Spiritual Meaning - Sexually Frustrated Or Repressed

    Dream Of Being Half Dressed Spiritual Meaning - Sexually Frustrated Or Repressed

    Are you looking for the dream of being half dressed spiritual meaning? Was being half-dressed a dream that you had? Semi-clothed dreams are no different from those in which you were completely nude. However, the message in your dream is precisely directed at the area of your body that wasn't covered. The exposed area represents the aspects of your life that you feel embarrassed or insecure about.

  • Instant Approval No Credit Check Loans: Advantages And Process

    Instant Approval No Credit Check Loans: Advantages And Process

    Many Americans face financial hardship when they require some extra financial help.

  • Emma Watters - Being A Political Commentator's Wife

    Emma Watters - Being A Political Commentator's Wife

    The journalist and TV show producer Emma Watters is going to take up the bulk of our attention in this piece because she is one of the most well-known people in her field. She works for Fox News Channel at the moment, and in addition to that, she is an Associate Producer for the long-running television program known as Watters' World. She came to the attention of the general public after a political commentator by the name of Jesse Watters hosted the show, and the two of them became embroiled in a significant scandal. Take a more in-depth look at our article if you are interested in learning more about this topic, as well as some other aspects of the life of journalists, which are included in the article.

  • Necrotizing Fasciitis – The Cause, Symptoms And Treatment

    Necrotizing Fasciitis – The Cause, Symptoms And Treatment

    Necrotizing fasciitis is a serious, uncommon, and sometimes fatal soft tissue infection affecting the scrotum, perineum, the abdominal wall, or the extremities.

  • "We Shouldn't Underestimate This Storm," Pierluisi Says As Hurricane Fiona Hits Puerto Rico

    "We Shouldn't Underestimate This Storm," Pierluisi Says As Hurricane Fiona Hits Puerto Rico

    "We shouldn't underestimate this storm," Pierluisi says as Hurricane Fiona hits Puerto Rico. At a briefing on Saturday, Gov. Pedro Pierluisi warned his country. Pierluisi of Puerto Rico said on Facebook Sunday afternoon that more than 1.5 million people will experience power outages as a Category 1 storm with sustained winds of 85 mph and heavy rains approaches the island.