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How the US Dollar is continuing to outperform major currencies

October 25, 2021
Theo Ashley-Hacker

High spending, high inflation and an economy that seems to be stagnating, yet the Dollar continues to rise against other major currencies. How is this possible and how long can it continue for?

Economic Growth and Global Sentiment

While the global economy is recovering as people learn to live alongside Covid, the delta variant is continuing to spread and hamper economic growth. Regardless, the sentiment continues to shift towards risk-on. The US is in a no-mans-land of sorts when it comes to economic growth at the moment. GDP is increasing quickly but is somewhat overshadowed by the similarly high inflation rate. The unemployment rate is falling but job numbers continue to be underwhelming. Despite this, the Dollar's unique advantage of being able to perform in both sentiments enables it to continue to outperforming other currencies.

Threat of National Debt and a Debt Ceiling Crisis

The debt ceiling is a limit on the amount of national debt that can be incurred by the Treasury that limits how much money the government can spend thus limiting how how they may pay on the debt they already borrowed. This debt ceiling has been reached many times in history but every time congress has made exceptions. However as Biden continues to spend and parties become more divided, what will happen when the government inevitably reaches the debt ceiling next is uncertain. Should the debt ceiling not be raised the government will be forced to default on their debts, the economy would near collapse and selling bonds in the future would become significantly more challenging.

Interest Rate Betting

Four months ago the Fed stated its intent to raise interest rates twice in the next two years, its probable that as time goes on an inflation continues to increase investors are betting on this happening sooner than later. This is backed up by the falling price of Gold. Gold is seen as a hedge against inflation, so this could be investors speculating at a decrease in inflation caused by an increase in interest rates.

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