DOLLAR UP AS ECONOMIES GO DOWN


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On 15 April, the dollar gained an additional 0.8 percent in value against a collection of 16 other major currencies.
The dollar was strong enough to pull investors away from gold, the price of which retreated 1.4 percent on the day.
Several factors drove investors to the safety of the dollar:

  • Stimulus money from the U.S. Federal Reserve has once again sharpened demand for dollars;
  • Commodity prices have plunged along with manufacturing activity;
  • Oil prices have hit depths not seen in more than 20 years, with no meaningful rebound in sight;
  • Developing countries are scrambling for dollars needed to pay their dollar-denominated foreign debt;
  • Loans to the governments of Greece, Italy, Portugal, and Spain, the economies of which were weak before the pandemic struck, became even riskier now, sending more investors to the dollar’s safe harbor.

The dollar’s value rose dramatically in March as the global economic lockdown took hold but had remained relatively stable for first two weeks of April.
TREND FORECAST: The dollar is strong because other currencies weaken as their central banks funnel cheap money into their economies. But the dollar’s unusual strength won’t last indefinitely, since the U.S. budget deficit will hit an unprecedented $4 trillion this year after Congress passes additional bailouts.
Indeed, it was big economic news at the beginning of the year with worries of a $1 trillion dollar per year deficits. Thus, as the dollar weakens, gold prices will rise in concert.

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