US Dollar Rides High in World Markets

The dollar Rises in World MarketsAfter the roller coaster ride of recent recession years, the US dollar is on top again – at least for now. And its strong showing against other world currencies may be due to the Federal Reserve’s much-maligned Quantitative Easing plan.

According to a recent Business Insider article on the performance of the dollar and other currencies, in the third quarter of 2014 the venerable US greenback hit highs not seen since 2010.

That was the period immediately after the great economic collapse of 2007-2009, when the housing market crashed and the nation was plunged into recession. In an attempt to bolster the sagging economy, the Federal Reserve set in motion its much publicized (and much maligned) Quantitative Easing plan, version 3.

The plan involved the massive buyup of mortgage backed securities, which the Fed hoped would keep interest rates low, stimulate the buying of housing and other goods, and get the economy moving once more.

QE3, the most ambitions of the Quantitative Easing put into place after the crash, was met with skepticism by many in the financial community, including officials of local branches of the Fed itself. The Fed’s buyup of over $80 billion in securities every month was keeping interest rates artificially low for an indefinite time, and financial experts worried that when the Fed decided to scale the program back, those rates would rebound to higher levels and trigger another crash as blindsided consumers found themselves unable to borrow and buy again.

But thanks to a brighter employment picture and a stronger housing market, the Fed began in early 2014 to take baby steps – to the tune of $10 million a month – to scale back the stimulus, with the option to kick it into high gear again if conditions changed.

Several months into the “taper down,” though, things haven’t worsened. Interest rates have inched upward, but not by much. And the dollar, as we’ve seen, has surged to its highest level in years, effectively silencing critics of the Fed’s aggressive move.

News about the performance of the dollar goes along with new data released by the US Department of Commerce, indicting an uptick in the Departments estimate of growth domestic product growth – its fastest increase in over 2 years.

That growth makes the US economy the “brightest spot” in today’s world markets, according the Business Insider. And it’s one reason the dollar continues to post gains against other leading currencies, especially in Asian markets.

The dollar continues to attract investors partly because the Fed’s final decision about the fate of the stimulus is still hanging, dependent on a variety of economic indicators. Because the future of QE3 still hasn’t been determined, international investors may be steering clear of US stocks and bonds, preferring to stick with the tried and true dollar.

The behavior of the dollar, and its attractiveness in markets around the world even in the toughest of times, confirms US domination of the world financial system – even as countries such as China surge to the top of the lists of the world’s largest economies.

US Treasury bonds are the backbone of the world’s currency markets, and its banks contribute to the setting of LIBOR rates – international interest rates – worldwide. And the world watches the moves of the Federal Reserve and American megabanks for clues to the behavior of those rates.

The Federal Reserve isn’t alone on the world stage in its efforts to manipulate economies. Other countries, faced with rising unemployment and a stagnant economy, have put into place easing measures of their own – but none so aggressively as the Fed. That, say some financial experts, may be keeping recovery slow and economies relatively weak.

The dollar isn’t without challengers, though. Some fear that China, now the world’s largest economy, might take aim at the dollar and the system it represents in order to claim that status as the go-to financial system for the world. And global conditions are liable to change rapidly, with emerging markets and other parts of the world claming a piece of the pie.

But backed by its longstanding – and very stable – government banking system and an enduing reputation for reliability around the world, the dollar continues to stay the course. And as the Federal Reserve keeps a watchful eye on the progress of the stimulus, the US dollar may still the currency to watch – and to trust. (Top Image:Flickr/squeakymarmot)

Sano, Hideyuki. “Dollar Hits Four Year High.” Business Insider via Reuters. 28 Sept. 2014.

Read more from The American Monetary Association:

Do Borrowers Need Banks?

International Conflict Hits Americans In the Wallet

The American Monetary Association Team




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