Currencies go up and down on a daily basis and most of the time, for those not working in the financial sector, it is hardly worth tracking the changes. The US dollar was down a few days ago and then up over the weekend. That said, the dollar is clearly displaying a marked upward trend. It has surpassed an 11-year high against the foundering euro. It has risen nearly 15 per cent against both the euro and the yen since last summer.
Some of that rise reflects the turnaround in the US economy. Its budget deficit has shrunk, so it owes less money. Unemployment is falling – last week, the number of new claims for jobless benefits dropped to their lowest level in 15 years, suggesting that companies were, at least, not laying off workers.
When the dollar goes up, prices for imported goods go down, which means that American consumers find their imported electronics and clothes are now much cheaper. Consumer spending helps the overall US economy and also affects “sentiment” – consumers feel better off and so are likely to spend more on goods that often come from the rest of the world. So a plus for the global economy. All of that is happening now; consumer spending is higher than it has been for years.
All of that is good news – for the US and everyone else – because it is the world’s largest economy. But it’s worth noting that at least one of the reasons the US is looking so good is because of the weakness of other economies. The Europeans, for example, have started a planned new round of quantitative easing, in a major effort to reinvigorate the euro zone. Most of the world’s advanced economies remain sluggish and Chinese growth is slowing. So we’re not entirely out of the woods just yet.
Moreover, commodities such as oil are priced in dollars, which means energy prices in local currency terms are not as low as one might imagine. But they are, nevertheless, lower than they have been in a long while in absolute and relative terms. So this will eventually prompt an energy-price induced pick-up in the global economy that benefits both hydrocarbon producers like the UAE as well as end-users. All in all, then, if you follow the dots, a strengthening US economy is welcome news, providing a much-needed spark for the globalised and connected world economy.
