Since the end of last year, the US dollar has suffered noticeable declines against most major currencies, as after the dollar index, which measures the value of the currency against 6 major currencies, reached levels close to 115, it has returned since last October to continue its decline, despite attempts to rise after positive economic data. However, the markets seem to be planning that 2023 will be the year of the decline of the US dollar and the loss of its influence.
The euro/dollar pair (the euro against the dollar) witnessed strong declines during 2022, as it lost more than 6 percent of its value when it fell from 1.15 below parity levels for the first time since 2022. However, the pair began to recover since the end of last year, and even continued to rise. In 2023, from 1.0480 levels, to settle now at the highest levels of 1.10. As for the sterling / dollar pair, it suffered strong collapses during the past year, with declines that amounted to more than 10 percent, as it fell from the 1.3750 levels to reach 1.03 dollars, and since the beginning of this year it has returned The pair once again increased by 0.35%, to approach 1.19 levels again.
The Japanese yen was one of the currencies that lost most of its value against the US dollar, which fell by more than 13 percent, as the dollar / yen pair reached record levels not reached since 1998 near 152, and with the beginning of the year the yen continues to recover against the dollar, rising by nearly 1 percent since the beginning of the year only, so that the dollar yen is now settling near 127.20 levels.
Economic data supports the strength of the US economy
Despite the expectations of the global economy slipping into recession, economic data continues to support the US economy and prevent the collapse of the green currency, as the latest of these data was the success of the labor market sector in adding more than 500,000 jobs in the first months of the year 2023, exceeding more than double expectations. , while unemployment continues to decline to support the exclusion of the possibility that the US economy will slip into recession, and then the service sector data came to confirm the strength of the US economy’s position compared to countries that suffer from clear weakness in most sectors such as the euro zone and Britain, according to Raed Al-Khader, Head of the Financial Markets Research Department. in Equiti Group.
What does the US Federal Reserve intend to do in 2023?
Al-Khidr answers this question, saying: “The US Federal Reserve began, in its last meeting last year, to reduce the rate hike path in 2023, and indeed this is what happened, as the interest rate was raised by only a quarter of a percentage point after the hike in 2022 reached half a point and 75 points.” percentage in each successive meeting starting from March 2022, but we must also bear in mind that the statements of most of the US Federal Reserve members, especially Federal Chairman Jerome Powell, prevent the collapse of the US dollar, as Jerome’s statements really succeeded in aborting expectations of a decline in the dollar.
Jerome Powell, in all of his statements, stresses that continuing to raise interest rates is necessary to control the rise in prices, and these statements come after the Federal Reserve succeeded, of course, in controlling inflation from 9 percent levels, so that the rate of price rise now stabilizes near 6.5 percent levels, but of course the road is still long as well. Bank members indicated with a healthy inflation target of 2 percent, according to the Greens.
pressures facing the US dollar
The head of the financial market research department at the Equiti Group, Al-Khader, explains in exclusive statements to “Sky News Arabia Economy”: “One of the most important challenges facing the US dollar in the year 2023 is the continuation of global geopolitical tensions. The US dollar is facing a major international challenge represented by attempts to abandon it in transactions. International trade, and this represents a threat to his share in these transactions, which is considered one of the most important factors influencing the future of the US currency in 2023. Markets”.
Al-Khader adds: “On the other hand, and despite the Fed’s statements that it will continue to raise interest rates during 2023, the markets expect that the Fed will start fixing the interest rate by the second half of 2023 according to the CME Group tool. Rather, there is a weak percentage that expects it to return.” The Federal Reserve to cut interest rates again by that period, which may put pressure on the dollar in the coming period if the situation continues like this.
The closer the Fed gets to the end of the rate hike campaign, the lower the value of the dollar
For his part, Ashraf El-Aidi, CEO of Intermarket Strategy, said: The US Federal Reserve is approaching the end of the interest-raising campaign, and historically, whenever the Fed approaches this step, it is accompanied by a decline in the value of the dollar, but the extent of the decline in the US currency will depend on the extent of the interest rate hike. In other central banks, especially the European Central Bank, the Bank of England and the Central Bank of Canada, as well as depends on indicators of economic growth.
Al-Aidi added, in a statement to the “Sky News Arabia Economy” website: “If a recession occurs, as happened in 2008, this will eliminate the demand for commodities and it may help the dollar, but the main scenario that paves the way for a continuous decline in the dollar, if we do not say a free fall, is stability. Global economic growth, while any decline or correction in inflation will be temporary, and the greatest danger is what is expected in the event of inflation rates rising again, which will force central banks in the world, including the US Federal Reserve, to raise interest, which will lead to a rise in the dollar.
The dollar may decline, but it will maintain its global position
In turn, the economist Hussein Al-Qamzi said in his interview with the Sky News Arabia economy website: “Since the launch of quantitative easing, some have been wondering.. Will the US dollar collapse? The question may seem reasonable on the surface, but for a currency crisis to occur in the United States is almost impossible. The dollar is the most important reserve currency in the world and all global commodities are priced with it, and by placing it as a reserve currency, the dollar obtains additional legitimacy in the eyes of users, currency traders and participants in international transactions through that.
Al-Qamzi adds: “The value of the US dollar may decrease, and this is from the nature of currencies, but it will maintain its position as the dominant global currency. As for the voices that appear whenever the value of the dollar decreases, that it is time for the dollar to collapse, these are wishes by some countries. In the past few years, the percentage of reserves has formed In all banks of the countries of the world, about 60 percent of the world currency is in US dollars. The dollar will remain dominant, and there is one currency that may challenge it, which is the euro, not the Chinese yuan.
