TOKYO – Everything currency traders thought they knew about financial gravity is being challenged by the dollar’s surprising bull run. The reasons why the US currency should be stumbling are almost too many to list.
They include the swelling of Washington’s twin budget and current-account deficits, signs that ultra-loose Federal Reserve policies are here to stay, ongoing fallout from former president Donald Trump’s disastrous trade war and Covid-19 response, Beijing’s efforts to internationalize the yuan and China’s world-beating economic recovery.
Where things are headed in 2022 also should be dollar negative. Inflation risks are heating up. President Joe Biden’s plans to spend several more trillions of dollars on stimulus and infrastructure are sure to push US debt past the US$30 trillion mark.
And vaccine hesitancy is colliding with a Delta variant upending initial successes in getting shots in American arms. But amid all this downward pressure, where is the US dollar? It is up more than 6% against the yen and more than 3% versus the euro in 2021.