Strong US Dollar: Will it Last?

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The US Dollar moved stronger against all major currencies. In April, USD strengthened 1.18% against Thailand Baht, 2.88% against Japanese Yen, 2.28% against Indian Rupee, and 2% against Euro.

US Dollar has decrease in value from last year. Economist predicted it will going to continue lower in 2018, but the recent movement shows an opposite trajectory. The movement leads to cautious mode of investors. The investment in non-USD denominated are at risk decline in value. One of reason for recent movement due to economic improvement in US at the faster pace. The increasing in US treasury yield, as impact to tightening monetary policy and balance sheet reduction, also give impact to strong US Dollar. The other reason that support US Dollar getting stronger was the anticipation of slower growth in Europe economy –which predicted will not as fast as last year.

Last year, USD get depressed by economist believe in the growth outside US will move faster while the US economic has reached the peak of economic cycle.

Rising US Dollar will attract investor to US Bond market and will reduce the pace of rising US Treasury yield. But the rising US Dollar not always gives benefit for companies or at the end US economy. US multinational company will suffer from uncompetitive pricing abroad –goods and services become more expensive. About 60% of companies reporting first quarter results said that the weakening US Dollar has positive impact to their earnings growth.

Some investors believe the US Dollar up trend will not last for a long time. There will be a balancing effect from upcoming further tight monetary policy of European Central Bank (ECB). Analyst also believe in the bullish cycle of US Dollar is coming to end. US Dollar bullish period started from 2011 and peak in early 2017 –which the strong US Dollar cycle usually lasts for five to seven years. So, the analyst believe that the dollar’s move is a bear market rally.

Idea taken from Wall Street Journal 30 April 2018 (Digital Version – 06:31 UTC +07:00).