What else ? If the US dollar continues to confirm its hegemony, there is simply nothing to replace it. What to buy instead: the euro, while the Old Continent is bearing the brunt of the war in Ukraine and the energy shock? The British pound, which is hardly better off, less attractive since Brexit? Of the yen, in free fall, while Japan still maintains its rates at zero? Chinese yuan, while the country is sinking into the real estate crisis and represents a major geo-economic risk, under the neo-Maoist rule of President Xi Jinping? Or bitcoin, which has been found to be as volatile in value as a tech start-up on the Nasdaq?
Before any technical analysis on the dollar, the United States is accumulating assets: it is not threatened by war; the world’s leading producer of hydrocarbons, they are not strategically weakened by the current energy shock; their businesses are in thriving financial health; the american economy is hit by inflation, but seems to be more advanced in its fight than its partners, notably Europeans. In a context of economic, political and monetary uncertainty, the dollar is the current safe haven.
In detail, the greenback is now worth more than 1 euro, for the first time since 2002. It has gained 16% in one year once morest the European currency. And this rise is widespread: it rose 20% once morest the British pound, its lowest since 1985, and 30% once morest the Japanese yen, which is back to its 1998 levels. It gained 8% once morest the Chinese Yuan. Since the beginning of the year, according to the Wall Street Journal Index, the dollar has appreciated by 13% once morest all currencies.
Rate hike
The most common explanation given is interest rates. The Federal Reserve (Fed, American central bank) has raised them since March and now remunerates short-term money at a rate above 2.25%. The cost of money will probably rise to 3% at the Fed’s monetary policy meeting at the end of September. Today, it is better to invest your money in the United States, where the remuneration of ten-year government bonds is 3.4%, once morest 1.73% in Germany and 0.25% in Japan.
When energy prices soar, the United States gets richer, while Europe and Asian countries get poorer
In today’s world, foreign exchange is certainly defined by purchases of treasury bills, but increasingly by purchases of stocks and corporate bonds. If the dollar rises, it is because investors around the world are buying American stocks, preferring Apple to Volkswagen – hit by the European crisis – or to Alibaba and Tencent – taken over by the Chinese Communist Party. Corporate profits have held up so far, and the outlook, even if revised downwards, remains better than in Europe.
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