US dollar rise likely to continue

Financial and commodity markets analytics

The U.S. Dollar Index which is a measure of the greenback against six of the world’s  major currencies is on fire at the moment, remaining above the 100.00 mark, as investors scramble to buy the world’s most popular currency with an urgency that hasn’t been seen since the 2008 financial crisis.

There are numerous reasons which are causing the greenback to surge at the moment but outstanding credit and dismal oil prices are said to be of the main culprits.

Although the Japanese Yen and Swiss Franc fall into the safehaven category, the dollar is also the world’s funding currency and needs to be used to pay back loans among other things which at the moment is causing some sort of panic and a worldwide shortage.

"Borrowers are very concerned that they will not have the dollar cash flows required to service that debt, so right now they are scrambling to get their hands on any US dollars they can get," said BCA Research strategist Mathieu Savary

"You don't get banks providing enough US dollars to the capital markets, especially the offshore market, yet the demand for dollars is sky high because nobody knows if they're going to have enough dollars to service their debts in one quarter or two quarters from now." he added.

Oil, which is traded in USD and is hovering at its lowest level in over a decade is also helping to strengthen dollar because of the current low prices which is causing the oil producers to hang onto and not distribute dollars into the financial markets

"Normally oil producing countries tend to have elevated savings rates. So they save a lot of dollars when they get the money for the oil they are exporting," Mr Savary said.

"But right now they are getting a lot less dollars so they are not recycling that money in the global offshore market, so that is also hurting the supply of dollars." he added.

A senate proposal, to flood the US economy with a trillion-dollar bailout, and may have helped stop the US dollar’s rise was defeated in the senate chamber after Democrats voted against the measure so for now it looks as though the King dollar is here to stay.


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