The future of the dollar: should we expect a new crisis in the U.S. currency
Despite the shock experienced last year, the U.S. economy managed to improve significantly and avoid the crisis. The U.S. market looks much more promising against the background of other countries, which is confirmed by the growth of the national currency. Analysts say that in these conditions the future of the dollar looks very optimistic.
The rise in value of U.S. money against the euro is associated with an increase in U.S. government bond yields. Moreover, previously experts said that as soon as the world economy shows a steady recovery, the dollar will go down. However this did not happen, and development of the American market went its own way.
Despite a fairly favorable picture, analysts are concerned that the U.S. currency will turn around under the influence of the inflation rate, which is rising. It is not yet known exactly when this will happen, but the probability is quite high.
Since the beginning of the year, the dollar has gained about 2.5% against major currencies. At the same time, previous forecasts spoke of a 20% decrease in the exchange rate.The key factor for the strengthening of the economy was the allocation of $1.9 trillion by the government. This amount included $1,400 that was given to American families as part of the program to support the population after the pandemic.
After the government approved this stimulus package, inflation expectations increased significantly. The funds were disbursed at a time when pent-up demand was noticed. People had already spent their savings from the lockdowns and were in dire need of financial assistance. In addition, these funds to stimulate the U.S. economy increased the size of the national budget deficit and together increased the debt burden.
According to an analyst from Bleakley Advisory Group, rising inflation has had a negative impact on the U.S. currency in the past. In addition, the volatility of the dollar contributes to an increase in the budget deficit and the balance of payments. Therefore, the expert believes that the weakening of the dollar is possible in the near future. He advises to increase investments into raw-materials assets and to pay attention to the shares of the companies from Asian countries that have been showing good growth rates lately.
At the same time, a number of analysts do not agree with the Bleakley Advisory’s point of view. According to experts, the fear of steep inflation growth that was predicted in the past has not been justified and this indicator is at a low level in the U.S.
In general, there are no prerequisites for the fall of the dollar or its crisis. The most difficult period for the U.S. currency will pass, but it cannot be said that it has gone smoothly. The dollar was quite fragile, but gradually it is strengthening.