Macroscope | Why the US dollar is winning the currency World Cup
Neal Kimberley says the Federal Reserve’s proactive approach to monetary policy and changes to US tax laws have bolstered the currency
“If there is a trade war, investment related to outsourcing will stop and investment will take place in the US instead, though consumption and trade will suffer,” wrote Stephen Li Jen, of London-based Eurizon SLJ Macro, last week. “If, on the other hand, there is no trade war, the improved prospect of exporting to China should also help the investment environment in the US.”
Jen’s view is that the greater likelihood is that Beijing and Washington will avoid a full-blown trade war and that the possibility of the emergence of “a global trading system that is freer and fairer should lead to a surge in investment in the US, flattering its potential growth rate”.
Many might disagree with that view but few could deny that the economic data emerging from the US remains healthy, even after seven rate hikes from the Fed that began back in late 2015. Indeed, more rate rises are in the offing, which may only enhance the attraction of a US dollar which, as Jen wrote, “is now the highest-yielding currency among the G10”.
