US dollar has performed its best in five years

The US dollar started the year more optimistically than analysts had predicted. Its value turned out to be the best one over the past five years, writes Forbes, citing American Bloomberg.

Since the end of 2019, the Dollar Spot Index has increased by 1.9%. It shows the strength of the asset compared to the top ten world currencies “in terms of trade and liquidity”. It includes euro, yen, Canadian and Australian dollars, pound, peso, franc and others.

The strengthening of the asset is facilitated by the growing interest of investors in protective instruments. The growing trend appeared to be a result of the danger of the coronavirus spread, as well as other risks to the global economy. The indicator was also influenced by financial stability, as well as the yield on government bonds of the United States, which doesn’t decrease even with falling refinancing rates.

For many years, analysts were confident that US economic growth would entail strengthening of the currencies of other countries. For this reason, they were sure that the balance between assets would be maintained. Now forecasters are forced to reconsider their views on the world economy.

Resource-dependent currencies have lost their resilience due to the unstable situation in China. The virus has hit commodity markets and slowed economic growth. The European currency, for example, has shown the lowest value against the dollar over the past three years. This happened after news of stagnation in Germany, as well as due to a decrease in industrial activity in Europe.

The low outlook for European countries means that the Central Bank of Europe will not be able to increase the refinancing rate, says Ben Emons, top manager at Medley Global Advisors. In his words, the low indicators of the European currency allow dollar to strengthen its price. Emons assumes that the levels of production and investment activity will remain low, which is why the Central Bank will not be able to raise the key rate. Based on this, the dollar will continue to rise in price against the euro, the expert concluded.