US Dollar Up

Projected to go even higher next month

I wonder where it’ll settle. The fed drastic measures started this new rally. If they cut the rates again I’ll bet on it going even further possibly to 65!

“If they cut the rates again I’ll bet on it going even further possibly to 65!”

Not necessarily. The main arbiter of any currencies  strength are interest rates which are now starting to come down Stateside. The US dollar benefits when there are major shocks to the world economies such as Covid. It is considered a ‘safe’ haven for investors to park their money. The US $ is the reserve currency of the world and dominates the currency markets much to the chagrin of the Chinese (and Fred?😉)

The world economy is starting to recover and confidence is returning (albeit slowly) to world markets. Of course other factors are at play too in determining a currencies strength but I don’t want to send readers to sleep.

9pm Phils time. I just looked it up again, 58.12 😊

@Cliff Spark

Hmm

Cutting rates expands money supply which should send $ down, right? Or not?

@danfinn

It is all relative. So, if the Fed cuts rates to a lower level than other central banks, but the U.S. economy remains relatively stronger, global investors may still prefer the dollar over pesos.

Interest Rates and Investments: Imagine the U.S. has just cut interest rates, so investors earn less on their USD-based investments (like U.S. bonds). Normally, this could make USD investments less attractive, leading people to look at other currencies for better returns.

Now, even though the U.S. has cut its rates, let’s say the U.S. economy is still doing better overall than the Philippine economy. Things like higher job growth, steady corporate profits, and general economic stability make it a safer bet for investors. This strength can make the USD more attractive, even with the lower interest rates.

Global investors are often looking for stable returns. Since the U.S. economy is stronger and more predictable than many others, people might still prefer to keep their money in USD. They might feel the stability of the dollar offsets the lower rates, especially if they feel uncertain about the Philippine economy or other emerging markets.

As a result, even though U.S. interest rates are lower, the dollar might still gains value against the peso. Investors are essentially “voting” for the stability of the U.S. economy over the higher rates in the Philippines, keeping demand high for the dollar and pushing its value up.

So, in simple terms, even when the U.S. cuts rates, a stronger economy can make the dollar appealing. This “relative strength” of the U.S. can mean the USD stays strong against other currencies, like the PHP, even if Philippine interest rates are higher.

It is absolutely counterintuitive I know.