Sherif Adel (Washington)
With the news that confirms the continuation of the US inflation rate at its highest levels in more than forty years, pressure is increasing on the Federal Reserve to adopt a more restrictive policy, by accelerating the rate hike on its funds and increasing its pace, which provides more support for the US currency in the face of Other currencies, at a time when it is not sure whether this is a blessing or a curse for the US economy.
US officials considered a strong dollar a good thing for Americans, emphasizing the anti-inflationary side of a strong domestic currency, as America imports more than it exports.
In addition, the strong dollar reflects relative optimism about the US economy during a period that will not be short of weakness for most of the world’s economies. The US interest rate hike, with the European Central Bank slowing to a similar hike despite the high inflation rate in the euro zone, and the People’s Bank of China cutting interest rates a few weeks ago, helped motivate investors to prefer the dollar and dollar assets.
Lisa Shalit, investment officer at Morgan Stanley Bank, believes that “the strength of the dollar, which was a distinguishing factor for the period that witnessed the emergence and spread of the Covid-19 epidemic, made the currency a protective shield for Americans against the problems of higher inflation in decades, as it increases its purchasing power in the face of imported goods. She stressed that this is clearly evident with regard to goods that are priced in dollars, so that the suffering of Americans from high prices is less than the suffering of citizens of other countries.
The strength of the US currency is not without flaws, as the decrease in the cost of imports, due to the rise in the value of the dollar, is a double-edged sword, as it increases the difficulty of the Federal Reserve’s task aimed at reducing the inflation rate and reducing the demand for goods in the American market.
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