“Doomsday loop”: will the dollar weigh on the global economy?

It has not happened for more than twenty years: the dollar is stronger than the euro. Launched shortly before the Dotcom bubble collapsed, the euro slipped below the dollar and rose above it in 2003. Since then, it has always held higher, before July 11, 2022. And the fact that he passed this fateful threshold is not good news.

As the formula says, “The gain of a dollar is the pain of the world”; the profit of the dollar is the pain of the world. The vast majority of international trade is done in dollars, and its appreciation against other currencies is ultimately bad news for the rest of the world’s economy.

only as reported by Bloomberg, this does not mean that the situation is comfortable for the United States itself. Inflation, which has yet to show any signs of abating, combined with high commodity prices indeed poses the risk of what the magazine calls “dollar doom loop“: monetary vicious circle.

Apocalypse loop

A strong dollar reduces global industrial production, which weakens trade and therefore raises concerns about global growth. This concern subsequently puts pressure on other currencies, further strengthening the dollar. And so on: the loop seems endless.

Of course, this is not the first time that the dollar has strengthened in this way. The US currency experienced periods of growth in 2016 and 2018, but each time the Federal Reserve (FED) managed to keep inflation under control and stop inflation before it got too high.

However, according to Bloomberg, the problem in 2022 is that the FED is already fighting with all its might against rising prices. by increasing interest ratesso far without success.

For Jon Turek, a financial analyst interviewed by Bloomberg, “What makes this version of the vicious circle particularly terrifying is that it’s quite difficult to understand how it happens [politiques faisant office de] circuit breakers will be able to play their part in the short term.”

Elliot Frost

"Pop culture maven. Analyst. Writer. Wannabe food evangelist. Organizer. Friendly internet lover. Incurable troublemaker. Entrepreneur."

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