The US dollar has witnessed a significant rise during the recent period, with the Bloomberg Dollar Index recording an increase of 0.5%. The rise came amid rising political tensions in France, where the far-right party threatened to bring down the government over the budget crisis, negatively impacting the euro. French bond futures also fell, reflecting concerns about the stability of the French economy amid the crisis.
At the same time, U.S. Treasuries fell as traders awaited U.S. economic data that could affect U.S. Federal Reserve policies in the future. Moreover, investors reacted to hawkish statements by the Bank of Japan, which weighed on global currency markets. On the other hand, the dollar received additional support from the statements of US President-elect Donald Trump, who stressed the need for US economic dominance to remain strong, calling on the BRICS not to create a currency competing with the US dollar. These statements contribute to strengthening the position of the dollar and enhancing confidence in the US currency on the global stage.
These factors combine to support the US dollar, while political and economic crises in some major countries, such as France, continue to affect other currencies, especially the euro. Traders and investors expect these dynamics to continue to affect the movement of global currencies in the short term. Moreover, the US dollar remains the main currency for international trade, especially in commodity markets such as oil and gold. In periods of global economic uncertainty, investors turn to the US dollar as a safe haven, boosting its value. This is what we see when financial or economic crises occur in regions such as Europe or Asia, where investors store the dollar as a protection against market volatility.
Factors that contributed to the rise of the dollar
Several factors contributed to the recent rise of the US dollar, with the Bloomberg Dollar Index increasing by 0.5%. One of these factors was the political and financial crisis in France, which affected the euro and European bond markets. France’s far-right party’s threat to topple the government amid disagreements over the country’s budget has spooked markets, prompting investors to convert their money to dollars as a safe haven at a time of political turmoil. Moreover, there has been a growing expectation regarding US policies, as traders await upcoming economic data that may provide new signals about the Fed’s policy directions.
Any results indicating continued growth of the US economy or the prospect of interest rate hikes may support the dollar further. At the same time, comments from US President-elect Donald Trump, in which he warned the BRICS against creating a currency that competes with the dollar, contributed to the strengthening of the US dollar. These statements were Serves as a reminder of U.S. policies focused on protecting the U.S. currency and strengthening its power in global markets.
In addition, markets were affected by the Bank of Japan’s trends, as the latter showed a tough stance in its monetary policy, prompting traders to convert money from the Japanese yen to the US dollar. All of these factors, including political moves in Europe, possible economic data in the United States, and global monetary policies, contributed significantly to pushing the dollar higher in global markets. In addition to the political and economic factors mentioned, there are other factors that contribute to the rise of the US dollar. The strong performance of the US economy compared to other economies in the world is one of the most prominent factors.
The impact of the rise of the USD on investors
The rise of the US dollar has significant effects on investors in financial markets around the world. When the USD rises, this affects many aspects of investment, including stocks, bonds, commodities, and foreign exchange. The US dollar is one of the major currencies traded globally, so its rise can change the dynamics of investing in international markets. A stronger USD primarily reduces returns on investments denominated in other currencies. As the USD rises, the value of foreign assets owned by U.S. investors decreases, which leads to lower returns when these assets convert into dollars. This affects foreign equity and bond investments, as the actual return on those investments decreases for U.S. investors. Similarly, an increase in the USD can affect U.S. companies that rely on exports, as U.S. goods and services are more expensive for foreign consumers, potentially hurting returns.
On the other hand, if investments in other currencies are affected by the appreciation of the dollar, foreign investors who invest in US assets accrue benefits due to the strength of the US currency. When the dollar rises, the return on U.S. assets increases, especially if these assets are dollar-driven such as U.S. stocks and bonds. This may lead to increased demand for US assets by foreign investors, raising stock and bond prices in the US. In addition, a stronger dollar can affect commodity markets such as oil and gold. Most commodities are traded in dollars, so when the dollar rises, commodities such as oil and gold become more expensive for investors who use other currencies. This may lead to a decrease in demand for these commodities, which affects their markets and reduces returns on investments in commodities.
