Economic growth situation
If the economic growth is good, it can attract international funds to flow into the United States and get a good return on investment, then the demand for US dollars in the financial market will increase, thus promoting the appreciation of US dollars against other currencies and the rise of the US dollar index. Data analysis shows that when the GDP of the United States grows well, it means that the economic situation is good, and the US dollar index is rising at this time.
The first economic boom occurred from 1983 to 1985. At that time, the Reagan administration pursued the economic concept of supply school, during which the average annual growth rate of American GDP was 5.37%, which was the rising period of the US dollar index. The second upsurge occurred in 199 1 to 1999. At that time, the Internet economy was booming. The American economy has been growing for more than 120 months, with an average annual GDP growth rate of 3.84%, while the year-on-year average CPI is only 2.8 1%. During this period, the dollar strengthened twice.
financial deficit
The US fiscal deficit has risen sharply since 2008, mainly due to the subprime mortgage crisis. But after 20 10, the fiscal deficit dropped rapidly. In the rising stage of the US dollar index, the fiscal deficit is usually small. Generally speaking, the fiscal deficit affects the dollar index through these three lines. First of all, fiscal deficits often lead to inflation. Due to the flood of currency issuance, the supply of dollars increased, the price level of commodities increased, and the dollar depreciated relative to other currencies. Second, the fiscal deficit easily leads to the current account deficit.
When the domestic supply can't meet the demand, it is bound to increase the purchase of foreign goods and services, thus expanding the current account deficit. Third, if the government wants to reduce the fiscal deficit, it must increase taxes, borrow money and issue money, but all these methods will reduce the dollar index: increasing taxes will increase investment costs and limit international capital inflows; Lending is light, the fiscal deficit gap is increasing, and the financial crisis is serious; The result of issuing money is often inflation.
inflation
On the premise that other things remain unchanged, inflation is equivalent to an increase in the supply of local currency, and the value contained in the unit currency will decrease relatively, while the demand for local currency will decrease and the demand for foreign currency will increase, so the local currency will depreciate relative to foreign currency. That is to say, no matter whether the United States implements loose monetary policy or proactive fiscal policy, as long as the US dollar inflates against six currencies, especially the euro with a weight of 57.6%, the US dollar index should decline, and vice versa.
When the CPI difference between the United States and Europe rises relatively, the US dollar index drops relatively; When the CPI difference between the United States and Europe is relatively reduced, the US dollar index is relatively rising. If we only compare ourselves, we can also see that the US CPI is strong and the US dollar index is weak, while the CPI is weak and the US dollar index is strong. It can be seen that the chain of "rising inflation-internal devaluation of currency-external devaluation of currency" is mutually confirmed theoretically and empirically.
Hedging demand
From 1980 to 1985, the US dollar index strengthened, and the Federal Reserve substantially raised its benchmark interest rate to combat inflation caused by the oil crisis. The high interest rate promoted the rapid appreciation of the dollar, but it led to the Latin American crisis, which caused people's panic. The dollar was further appreciated as a safe-haven asset. During the rise of the US dollar index from May 1995 to June 5438+0, 2006, the Asian financial crisis and the European Kosovo war also prompted international funds to return to the United States, and it was not until the Internet bubble burst that they fled.
The subprime mortgage crisis swept the world in 2008, and when the European debt crisis occurred in 2009, the US dollar was also held as a safe-haven asset. During these two periods, the US dollar index rose slightly. From the Latin American crisis, the Asian financial crisis, the Kosovo war, the global subprime mortgage crisis to the European debt crisis, the US dollar has always been held as a global high-quality safe-haven variety. This feature is determined by the economic and political status of the United States, which also leads to the rise of the US dollar index whenever there is a local crisis.
future trend
To sum up, it can be seen that economic growth is the key factor affecting the US dollar index. If the GDP growth rate increases, it will cause the economy to overheat and increase the possibility and frequency of the Fed's interest rate hike. If the economy improves, international capital will actively flow in for investment. Of course, under the sharp contrast between the growth rate of GDP in the United States and the economic downturn in other countries, funds will flow to the United States, thus promoting the rise of the US dollar index.
Looking forward to the future, first of all, from the fundamentals of the US economy, the US GDP in the fourth quarter of 20 16 was 1.9%. Although lower than expected, the economic data is bright. The interest rate meeting in February 20 16 predicted to raise interest rates three times in 20 17, and Federal Reserve Yellen made it clear that the target interest rate of federal funds in 20 19 would be close to 3%. At the beginning of this year, European GDP, inflation, manufacturing and other data showed that the European economy rebounded, and the European Central Bank continued to choose not to move at the 65438+ 10 meeting.
Secondly, from the geopolitical point of view, Britain has initiated the process of Britain's withdrawal from the EU, but still hopes to reach a comprehensive free trade agreement with the EU. Finally, judging from the French general election, two candidates with completely different ruling ideas mean that the future of France will face great uncertainty. As the leader of the right-wing party, Le Pen hopes that France will leave the EU and take measures to protect domestic employment.