IANS | 11 Feb, 2024
The US dollar greenback is strengthening again after a bumpy 2023, as
Wall Street accepts that interest rate cuts are coming later than
previously expected, a media report said.
The US Dollar Index,
which tracks the dollar against the British pound, euro, Swiss franc,
Japanese yen, Canadian dollar and Swedish krona, is up 2.8 per cent for
the year as of Friday, CNN reported.
The US currency slid last
November and ended the year lower against that basket of currencies as
investors grew optimistic that the Federal Reserve would soon cut
interest rates. But Fed Chair Jerome Powell said in January that
interest rate cuts are unlikely to begin in March, as investors widely
believed would happen.
Piping hot economic data in recent weeks
has supported the notion that the Fed will keep rates higher for longer.
The Consumer Price Index rose 3.4% annually in December, still above
the central bank’s 2 per cent target.
A stronger dollar is bad
news for American companies that generate most of their revenue
overseas, since it means fewer dollars for their bottom lines when other
currencies, such as the euro, are converted into US dollars. But it
also means that US companies and consumers could spend less for imported
goods, and Americans’ purchasing power increases when traveling abroad,
CNN reported.
Other countries’ monetary policy decisions also
affect the greenback’s trajectory. The European Central Bank in January
kept rates unchanged. But if ECB President Christine Lagarde so much as
hints at a rate cut coming this summer, that could continue driving the
dollar higher, said Quincy Krosby, chief global strategist at LPL
Financial.
Higher interest rates tend to garner more international
capital to flow into a country, raising demand for the currency and
thus its value.
The 10-year US Treasury yield has jumped back
above 4% this year as investors recalibrate their rate expectations,
providing another boost to the US currency, CNN reported.