Jakarta –
The United States Dollar currency is often hunted by investors in the midst of conditions of economic uncertainty. Investors often hoard this one item because it is considered the safest currency to hold.
Likewise, amid the uncertainty that occurred in Europe due to the conflict between Russia and Ukraine. Last week, the US dollar rose to its highest level since spring 2020. Concerns have been growing among investors about how Russia’s war in Ukraine will affect the global economy and financial markets.
Investors seem to have decided they don’t want to hold on to the virtual Euro anymore given the proximity of the European region to the conflict. They dumped the block currency and bought Dollars instead.
“European markets are completely unattractive at the moment simply because of their geographic exposure to Ukraine and Russia,” said ING strategist Francesco Pesole.
In fact, even US stock markets have done much better than European stocks since the Russian invasion because the American economy is more isolated from war and its consequences.
Natural gas prices in Europe hit record highs last week on concerns about what will happen to energy exports from Russia. The United States, which is the main producer of energy itself, is also affected by the increase in global energy prices, but the impact is lower than that felt by European countries.
The US economy also looks healthy despite high inflation. There were 678,000 jobs added in February, which means the economic recovery is starting to go well in Uncle Sam’s country.
The dollar also got a boost after Federal Reserve Chair Jerome Powell said the central bank aims to start raising interest rates later this month. Higher interest rates will help attract capital from abroad, especially if European policymakers delay their rate hikes longer because of the conflict.
“The market and central banks want to hold the dollar because it’s a very liquid currency. It’s very tradable. The dollar is supported by a very strong and solid economy,” Pesole said.
The skyrocketing dollar price is indeed good news for investors. But big concerns arise for developing countries which often have to pay their debts in Dollars. When this currency rises, the debt will be more expensive to pay.
There is already some anxiety about whether Russia’s economic boom will also cause investors to leave markets such as Brazil, Turkey or Mexico which are experiencing major economic corrections. An increase in the dollar could add to the pressure.
There is also the issue that Russia’s war in Ukraine could shake the dollar’s dominance. This is because Russia could strengthen its resolve to join China in developing alternative financing mechanisms that would make Western sanctions less effective over time. However, this seems to be just wishful thinking.
“There’s really no indication that the dollar’s dominance can diminish. That can only happen in the long term,” Pesole said.
Watch the video ‘Russia bombards the suburbs of the capital Kiev’:
(hal/zlf)
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