The recent US dollar volatility has led to two completely different reactions between economists and market participants.
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The recent US dollar volatility has led to two completely different reactions between economists and market participants. Some see this as part of better economic performance in the future. Others fear it will be disrupted. The answer may be determined by politics rather than by economics. Especially be prepared to participate in next year’s US elections. Investors and companies can now take steps to protect themselves partially from disruption. This kind of vague strategy guarantees maximum potential for extreme results in many areas.
The stability of the dollar is not surprising, given the three major factors that attract foreign capital to the United States, a domestic economy that has permanently outperformed other developed countries, Second, a stock market that outperforms others and thirdly unsecured productive gains for fixed-income investors. Investors believe that in the weakening of today’s global economic environment, only the United States is able to maintain long-term value in its currency. European and emerging economies fear that the continued stability of their currencies will further reduce their growth. It also explains the conflicting views about what happens next. For some, the stable dollar is part of a restructuring of the balance of the global economy. It helps the economies more vulnerable to trade and the economies more affected by World Trade War, so that they can reach the highest performance of the US.
The stable dollar, however, presents risks.
First, Unfair trade practices against America launched by the Trump administration as part of efforts to end it the prolonged trade war risks the top currency war.
Second, it jeopardized the Federal Reserve for further political attacks, which undermined the Federal Reserve’s credibility and the credibility of its associated market.
Third, it can destabilize emerging markets with large currency currencies, which includes what economists call real sin. This happens in countries that have borrowed large dollars in dollars but generate a large portion of income for interest. And use less-than-dollar currencies to pay on time.
The three factors mentioned above weaken growth, market volatility and tighten financial position. They will come at a difficult time for the global economy. Global economic activity and trade are slow; Europe may be facing economic crisis next year; Central Banks policy slows down on ammo, there are few, if any, stories of reform in emerging markets. The transition depends, first and foremost, on American politics; there is a possibility of a tilt in favor of a better outcome. Facilitating the international playground on trade, especially with China but also with other countries, this is one of the few issues that command wide political support in the United States. Not everyone agrees on the procedure, but most are united in adhering to better trade terms for the United States. This increases the likelihood of using currency policy as a weapon.
By giving the US more timely incentives, though only partially Europe and China can counter the threat, especially when there have been complaints of prolonged intellectual property theft and the forced transfer of technology to China. As part of re-balancing policies in favor of structural terms and fiscal stimulus, the European Central Bank may also be helping to gradually reduce the free use of unconventional monetary policy to influence asset markets. This has been a disappointing pursuit of better overall economic results, and is becoming increasingly contagious.
The double result associated with the stability of the dollar is an example of a remarkable new situation that is working not only in economics and financial matters, but also on institutional, political and social issues. This reduces the likelihood of a continuation of the situation, and creates greater chances for extreme consequences on both sides of the situation. This trend is gaining momentum, but not as much as it deserves. This is perhaps not surprising, given that there are many behavioral reasons that we oppose moving beyond our comfort zones.
In this era of extremism, what can companies and investors do?
They can reduce currencies, increase their cash buffers, and find effective cost flexibility in rankings to increase flexibility. Investors can also raise standards to limit exposure to their fixed income activities, trends in price and securities increases. And shorten maturities. And instead of being a source of volume for the domestic market, US companies operating abroad should focus on meeting their demand there that is, in China; only adopt the strategy for China. Contradictory claims about stable dollar results are a long list of the unusual uncertainties facing the current weak global economy. Instead of ignoring the high potential for extreme results, companies and investors need to counter this in their strategic planning. Thinking about it is like minimizing future misery.
