US Dollar Value Hits Highest in 2 Years... Strength Expected Due to Tightening and Ukraine Crisis

[Asia Economy New York=Special Correspondent Joselgina] The US dollar has surged to its highest level in two years due to the Federal Reserve's (Fed) interest rate hikes and other factors. With geopolitical risks such as Russia's invasion of Ukraine adding to the situation, safe-haven assets are strengthening, leading to expectations that the dollar's strength may continue for the time being.

According to the Wall Street Journal (WSJ), the WSJ Dollar Index, which measures the value of the dollar against the currencies of 16 major countries, stood at 93.05 as of the afternoon of the 20th (local time), up 3.89% since the beginning of the year.

The WSJ Dollar Index has risen on 13 of the last 15 trading days, reaching its highest level since May 2020. The dollar has gained more than 10% against the Japanese yen and over 5% against the euro this year. It has also recovered to the level seen in March 2020, when the COVID-19 pandemic triggered a global rush to secure dollars.

The Dollar Index, which measures the value of the dollar against the currencies of six major countries, fell 0.62% from the previous trading day to 100.34 on the same day but has shown an upward trend recently.

This dollar strength is interpreted as a result of the Fed's tightening measures, including raising the benchmark interest rate to curb inflation. The WSJ reported, "One of the main reasons for the dollar's strength is that US growth is outperforming other regions' recoveries, and the Fed is expected to raise interest rates quickly."

Typically, when the US benchmark interest rate rises, demand for the dollar also increases. The Fed is expected to raise the current benchmark rate of 0.5?0.75% to 3% by the end of this year.

Additionally, overseas geopolitical risks such as the Ukraine war are also seen as factors behind the dollar's strength. Western sanctions against Russia are expected to negatively impact not only Russia and Ukraine but also European economic growth, increasing demand for safe-haven investments and leading to a rise in the dollar's value.

Christine McClaud of Barclays said, "The dollar's value rises when there is a need to avoid risk or when the US economy is relatively strong," noting that both situations have appeared together since the Ukraine war.

Experts predict that this dollar strength trend will continue unless US economic indicators worsen or the Fed stops its hawkish stance. David Adams of Morgan Stanley pointed out, "Investors are increasingly buying more dollars," adding, "The key over the next 6 to 12 months will be how US growth prospects compare to global growth."

However, some interpret the recent dollar strength as possibly a short-term trend caused by stock market weakness and other factors.

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