‘Mighty Dollar has turned strong’: what Anand Mahindra said about the currency

The dollar is currently at its strongest level in two decades, the impact of the latest challenging macroeconomic environment. It is fair to say that the appeal of the US currency is high in times of turmoil. And recent global exposures have shown a great example of how the greenback becomes attractive and a source of comfort for investors. However, this also leads to the devaluation of other currencies around the world. Keeping the forex performance in mind, Mahindra Group Chairman Anand Mahindra believes that the dollar is the currency of protection.

“The ‘mighty’ dollar has strengthened. Despite perceptions of declining US influence globally, the dollar remains the currency of protection,” Mahindra said on his Twitter account on Monday.

“It looks like we are just in the middle of a list of depreciating currencies,” he said.

Mahindra had tweeted a report in The New York Times which said that the dollar lubricates the global economy. It accounts for nearly 90 percent of all foreign exchange transactions, which before the pandemic accounted for $6 trillion in activity every day, from tourists using their credit cards to companies making major international investments.

The greenback has touched a 20-year high. The reverse this year is more than 10% against a basket of currencies.

According to the report, the Japanese yen has fallen to a 24-year low against the US currency and the euro, one exchange rate for one, dipped into parity, with the green for the first time since 2002. Not only these major currencies, but in fact, either the Colombian peso or the Indian rupee, the Polish zloty or the South African rand, and others – have probably lost value against the dollar, especially in the past six months or so.

The dollar index has remained strong in the US due to decades of high inflation, which has prompted the Federal Reserve to aggressively hike key interest rates over the past few months. The US has seen inflation of 9.1% – the highest since November 1981. With the Fed again set to announce its policy results later this week, another sharp rate hike is on the table.

It is not just the US Fed, other major central banks are also tightening their monetary policy with sharp rate hikes. The European Central Bank is expected to hike key interest rates for the first time since 2011, while the RBI may make another hike in the repo rate in August policy.

“The US inflation numbers for June came in at 9.1% yoy versus market expectation of 8.8%,” said Ritika Chhabra, Economist and Quant Analyst at Prabhudas Lilladher. On a month-on-month basis, it grew by 1.3%, again from the expectation of 1.1. higher. %, led by higher prices of energy, food and rent. Both the headline CPI and the Fed’s preferred inflation gauge, the core CPI, accelerated over the past month.”

At home, the Indian rupee on Monday hit a record low of 80.075 against the US dollar in the opening trades of the interbank forex market. However, the currency pulled back and was trading at 79.895 per dollar from its previous close of 79.785. Its day range is up to 79.714 and 80.075.

Meanwhile, the US dollar index was slightly lower 0.4% to 137.99 as investors reacted to o strong US core retail sales data and as they await US Fed policy.

According to Megh Modi, Commodities and Currency Research Analyst at Prabhudas Lilladher, the US Fed may hike interest rates next week due to the fall in inflation which is now 9.1%. A 75bps hike is likely by the FED next week, which has been taken into account. Any aggressive move by the central bank could lead to selloff in global equities and commodities.

While Chhabra said, “With inflationary pressures intensifying, future markets are now pricing in a 100 bps hike rather than a 75 bps hike in the upcoming July FOMC meeting. If the Fed eventually decides to go for a hike of 100 bps, it will be bad news for emerging markets like India. FIIs have been aggressively withdrawing money from India since the beginning of this year. A higher rate hike than the consensus expected may accelerate redemption by FIIs, creating another downside for Nifty. A higher than anticipated rate hike would also push the dollar value further, thus further lowering the INR will do it.”

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