On Dec. 15 the dollar took another leg up to cross 103 on the index, securing its highest level in 14 years. And this move comes one day after the Federal Reserve hiked the Fed funds rate by .25 bps for only the second time in the last decade.
The dollar had actually been below 101 prior to yesterday’s Fed announcement and has risen over 300 bps in less than 24 hours. And this rapid move has now caused the Euro currency to decline to the point where it is only 400 bps from being equal to the dollar.
The dollar surged to its highest levels in 14 years on Thursday, after the Federal Reserve hinted that US interest rates could rise faster in 2017 than investors had been anticipating, and hiked rates for the first time in a year. The dollar jumped after the Fed statement late on Wednesday and built on those gains on Thursday, climbing as much as 0.8 percent against a basket of major peers to hit 102.62, its highest since early 2003, as US Treasury yields surged. Against the yen, the dollar jumped as much as 0.7 percent on the day to hit 117.87, its strongest since February. – Russia Today
The extremely strong dollar will have a myriad of effects for a number of economic environments such as being beneficial for pensions, while also being detrimental to the trade deficit. And for consumers within the United States, the strong dollar will provide greater purchasing power domestically as well as for wanting to buy products and services bought outside the country.
Unfortunately the dollar’s rapid rise should result in numerous consequences for foreigners, and especially economies in the emerging markets that must buy dollars with their own devalued currencies to purchase oil, natural gas, and other commodities such as foodstuffs in the international markets. And just five years ago the dollar’s rapid rise from 72 to 88 was a key catalyst in bringing about the Arab Spring since these countries in the end of the Great Recession could not afford to buy dollars to feed their people.
In the end having a strong dollar would be most beneficial to the U.S. if they were a creditor nation rather than a debtor one, as the resulting increase in interest rates will create a devastating environment for their need to roll over the nearly $20 trillion in outstanding debt. And as we saw when the Fed raised rates exactly one year ago, it also led to the historic drop in the stock markets where the Dow closed down for 17 straight trading days to begin 2016.
Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.