The U.S. Dollar is currently strengthening, which may become a problem for the entire global economy. The rally seems to be confident. The tendency started after Donald Trump won the U.S. presidential election 2016. On top of that, the American currency is now 40% stronger than 5 years ago.
Since some other national currencies are weakening, the current rally shown by the U.S. Dollar looks even stronger. For example, the Chinese Yuan has already dropped down to the lowest point since 2008 against USD. The same holds true for the Indian Rupee.
At the same time, experts believe that a stronger dollar may well trigger some changes in the economic and political strategies of the USA. The American currency has been successfully getting stronger over the last few years. However, the kind of a rapid hike we can see now is another story. It’s is really capable of triggering major political and economic changes in the USA.
At this point, many experts expect Donald Trump to bet on tax cuts and spending hikes, especially when it comes to the American infrastructure. More intensive tax stimuli are expected to trigger higher interest rates. For those of you who don’t know, over the election night alone, the 10-year U.S. bond yields increased from 1,7% all the way up to 2.3%. this is a very tempting thing in itself, when it comes to capital flows.
On the one hand, the USA is still the world’s biggest economy, and its growth should favor the global economy. However, today experts remind us about the times when Ronald Reagan was the U.S. President. Back then, the U.S. Dollar was really strong as well. However, this had a negative impact on other economies. These days, the scenario may be even worse since the international financial markets and economies have already shown how sensitive they are about the strengthening U.S. Dollar.
Moreover, an even stronger dollar creates danger for the U.S. economy itself. At this point, more and more trade partners of the USA are shrinking their trade relations with the world’s biggest economy. There are other negative tendencies associated with a stronger dollar. However, they are not that clear for now.
