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Four factors drive the risen of the U.S. dollar

Jun. 12, 2018

First, the U.S. economic fundamentals are significantly stronger than Europe and Japan. The U.S. dollar index is not a one-man show of the United States, but it is the result of the comparison between the U.S. economy and the economies of other countries. In particular, the euro zone economic fundamentals with a weight of 57.6% in the U.S. dollar index are the most important external factors affecting the U.S. dollar movement.


Second, trade frictions and geopolitical turmoil trigger the need for international capital "hedging." The “risk of anti-risk” demand from international capital is also an important factor in the appreciation of the US dollar.

There are mainly three aspects:

First, this year, the Trump administration has not only provoked trade frictions between China and the United States, but also the European Union, Japan, Canada, and Mexico. South Korea and other allies fought in all directions and global trade disputes rang out.

Second, political turmoil in Italy aggravated the market’s worries about the destiny of the euro and the European economy. Spreads in countries such as the United States and Italy quickly expanded and increased the pressure on the devaluation of the euro;

Third, although the DPRK issue may be eased, the Iranian and Syrian issues are still in a deep game and may cause global geopolitical turmoil at any time.


Then comes the sentiment of the investment market to make more dollars is growing. In general, the foreign exchange market uses the number and proportion of non-commercial long positions to evaluate the speculative capital's view on the US dollar index.


Finally, the attitude of the Trump government’s “weak dollar” policy is changing. The trend of the dollar, Trump's attitude is crucial. Looking back at the beginning of the Trump administration, it is in the stage of a strong appreciation of the US dollar. Since the beginning of this year, Trump is changing his strategy to reduce deficits through direct trade negotiations with major trading partners such as China, Europe, and Japan, as well as simple and brutal ways for countries to “enlarge imports from the United States and limit exports to the United States”.


In a word, the economic fundamentals of “American Superior than European”, political turmoil in Italy, Trump’s change in attitude towards the US dollar and other factors will continue, and the likelihood of the US dollar remaining relatively strong in the second half of the year remains high.


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