Surge in US Dollar likely to continue given global economic uncertainties: Emkay Wealth Management

“The very fact that almost every other economy is plagued with inflationary pressures and falling economic growth rates brings to the fore the safe-haven status of the US Dollar in the face of uncertainties.,” they said.

“What has added to this positive sentiment is the emphatic action on interest rates from the Fed, which instilled confidence in the markets that the inflation-combating mode will halt the price rise faster than expected,” it added.

The US Dollar index, which tracks the greenback against a basket of currencies of other major trading partners, touched 104.28 in June 2022. The movement in the Dollar Index demonstrates the strength of the US unit and is likely to have a trajectory in the coming months.

The wealth management house noted that the inflation in the UK and other parts of Europe is at a multi-year high. The latest economic data from Europe indicates the growth challenges. Though the ECB has already announced its desire to bring in rate action, nothing concrete has been materialized yet.

“The worst loss against the US Dollar was witnessed in Japanese Yen, mainly rattled by low-interest rates, a low rate of growth, and a not-so-buoyant local demand. The currency may lose more ground as growth concerns escalate and as demand remains subdued,” it said

“The Yuan is weaker compared to its position about six months back. The resurgence of COVID fears, the lockdown in the important provinces, the impact of the domestic conditions on trade, etc. resulted in a weaker currency,” it added.

Explaining the impact on the domestic currency, it said that the Indian Rupee has been adversely affected mainly by the FII pulling out funds from the equity market, rising crude prices, and the deteriorating trade balance and dollar strengthening. The Indian government’s finances may also be a matter of concern for overseas investors given the rising expenditure, which may lead to dependence on the markets for additional resources.

The rupee on Wednesday fell to an all-time low of 78.86 against the US dollar at the open. A few analysts said it is a matter of time till it touches the 79 mark. The partially convertible rupee was trading at 78.94/95 per dollar. The currency closed at 78.77 on Tuesday.

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