The world economy has seen a projected shrinkage against the backdrop of the devastating COVID pandemic. It has impacted all countries globally. Both the developed countries, as well as the developing economies, have seen a plunge in their GDP growth rates up to 5%. Foreign exchange fluctuations impact international trade and capital flows for the global economy. With the Forex market getting heavily impacted by the coronavirus pandemic, the traders’ attention this year will be towards investment based on individual parameters. The US has led to the forefront of the world scene for years with a stable economy and robust foreign reserves. However, with significant changes affecting the US economy this year in general, the fate of the US dollar will be the most discussed issue in the global market.
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Economic Consequences of US Political Events
With the new Biden government coming to power in January this year, it is likely that the US is all set to initiate a massive stimulus plan to fund virus testing and vaccine distribution, extend unemployment benefits, boost infrastructure spending and support distressed state and local governments. Under the new expectations, financial markets are expected to push up equity prices and bond yields.
The country is still struggling with various issues like uncertain politics, increased debt levels, and soaring unemployment. Currently, the US economy is all set to achieve a recovery target. This means that the US Dollar will continue to be weak until the impact of any anticipated stimulus spending makes the picture clearer.
Currency markets can be volatile, and it can be challenging to determine the best dollar rate for international money transfer. So, it is always beneficial to use a risk-free currency exchange portal to make the most of your money during international money transfers.
Current Status of the US Economy
According to the Wall Street Journal, the US dollar had dropped by about 12% by March 2020, against the major international currencies as the country got hit harder by the coronavirus pandemic than most major economies.
The US Federal Reserve has kept the dollar at a lower position in relation to the other currencies in the last few months based on the QE or Quantitative Easing concept. This allows the generation of money to buy bonds from the government or the corporates. This will reduce interest rates and encourage spending or bring more money into circulation. The US stock market is currently priced carefully. On the political side, the current status of US politics rules out any plans to raise taxes or for increasing regulation, as the Republicans retain a majority in the senate. This will be much desired in the investment arena.
Current Status of the US Dollar
The US Dollar Index lost enough ground in 2020 as the Federal Reserve cut rates. This index measures the strength of the US dollar against a range of international currencies that impact the world economy. The following points clearly speak about the current position of the USD in the global money market.
- Currently, the US dollar is under a lot of pressure, and as per a general market consensus, the dollar will continue to move lower.
- It is speculated that the value of the US dollar will be heading down for quite some time as the rest of the world seems to be in an economically stronger position.
- The dollar rate for major world currencies is as follows: One Euro is about $0.83, and one pound sterling is $0.74. One USD can buy about 6.48 Chinese Yuan. 1 USD is currently 73.14 INR as per today’s dollar rate.
- The US Dollar Index (DXY) has witnessed a rise of 0.47% from the dismal performance in 2020.
The current levels for the American currency so far reflect a change in the upward direction. If the situation in the world economy improves and international trading gets a boost, the US economy is expected to see a surge.
Key Considerations in US Dollar Forecasting
While it will be too early to attempt a forecast for the movement of the US dollar, both local and global factors may impact it. Investors always tend to look out for exchange rate forecasts so that they can derive monetary value based on the predictions. Currently, the currency market is volatile due to uncertainty from the COVID pandemic.
- The USD is expected to remain weak against other currencies due to an increase in the US money supply and a struggling economy.
- Once the economy resumes activities and the Federal Reserve increases interest rates, there may be sufficient scope for the USD for a surge.
- For any interest rate cuts outside the US due to the slow-down of the economy in the non-US countries, the dollar will see a rise.
- China’s enhanced international trade, which increases the demand for US imports, may cause a positive influence on the USD.
Key Influencers of the US Dollar
- US Economy Strength– The movements of the dollar get strongly influenced by the business decisions of Canada and China, who are the US’s important trade partners. These exchange rate relationships may be significant for the forecasts for the AUD-USD pair.
- US Federal Reserve – The upcoming announcements and policies of the local reserve banks or the US Federal Reserve will be crucial when trading currencies. This is because they address interest rates that are responsible for attracting foreign investment.
- Market Speculation– Professional currency traders can play a key role in driving USD movements. Major Banks agree that the Eur-USD pair will trend higher, while the GBP-USD will weigh down due to Brexit in Europe. Similarly, the Japanese Yen is supposed to stand firm against the USD this year.
- Globalization Policies– Such policies that influence international trade and labor agreements can substantially affect the US dollar. As per Fidelity Investments, anti-globalization policies may lead to increased labor costs and can cause inflation. This will, in turn, put pressure on the profit margins. If you are thinking about making an international money transfer, you need to be vigilant of the anticipated US policy announcements.
The world is subject to radical uncertainty, and the currency markets are unstable. The world economic dynamics are subject to massive changes. It is difficult to determine the right time and rate for your international money transfer. As the USA returns to stable governance, both investors and the currency market may observe more certainty, and the economic picture will become more apparent.