Why Dollar is appreciating in value?
How countries finance their requirements?
Let us
explore the causes behind the rise in value of the Dollar. When a country
requires money, there are two major sources used all around the world i.e.
either impose taxes & increase user charges to fill the basket of
treasuries at government level or to take debt from open market, banking
companies, non-banking financial companies and lenders. In case, the country
decides to raise money through open market, it is required to pay interest rate
to the public or investors. More the interest rates, more the investors come
ahead to finance the country. Now-a-days, the United States set the interest rates
to continue rising and this is being considered as a major cause of rise in the
value of Dollar. The United States is issuing bonds with higher rate of
interest and in order to buy the bonds, the foreign investors require Dollars.
The foreign investors buy dollars and then make payment for purchasing bonds
and it rises the value of Dollar.
Demand of Currencies:
Secondly
the demand of currency i.e. Dollar is rising due to the performance of an
economy using it. For example, the United States’ performance attracts the
investors from around the world. The more the performance, more the chances of
returns or profits from the investments. The investors always seek highest
yield from their investments. A strong economy is always trusted by the
investors and this time due to performance of United States going up, the
investors are demanding Dollars to invest in the country. The demand and supply
of Dollar is fluctuating the rate of Dollar.
Role of Foreign Institutional Investors:
The Foreign institutional
investors (FIIs) also affect the demand of the currencies. It depends upon the
performance of the countries, returns from the investments, and potential of
growth; that the FIIs be attracted. For example, during the year 2017-18, the
Asia remained worst performer, it made the FIIs not to invest in Asian countries
and the rupee be depreciated, which further lead to increase in current account
deficit of India and other Asian countries.
Sentiments of Investors:
Thirdly the
sentiments of the investors towards the improving performance of the country.
The investors are constantly monitoring the decision of administration working
under control of the President Donald Trump. The decisions are seemed to be
autocratic but enough to generate more revenues and make the economy of United
States stronger in financial terms. Due to improvement in the financial
performance of United States, the investors are looking positively to the
economy and investing in the companies & government of United States.
Imports and Exports of a Country:
Fourth, the
imports and exports of a country. Suppose, the United States starts to export
more goods and services then it will be required to pay for the goods and
services coming from the United States. The payment is required to be made in
Dollars. The Dollars will have to be bought first then payment will be made to
the United States. The conversion of other currencies into Dollar will rise the
rate of Dollar.
Speculators' intervention on bases of technical factors:
There are
speculators known as traders who always intervene to gain maximum profit from
the rise or fall in the value of currency. Whenever, the statistics are
released by Government on various factors like Gross Domestic Product (GDP),
Industries indexes, and other economic factors, if they represent a strength in
the economy, the traders or speculators start buying the currency for selling
it on higher rates. On the other hand, if the statistics represent a weakness
in the economy, the traders or speculators start selling the currency in
advance to encash their profits by buying the currency on lower rates in near
future. Such interventions also benefiting the Dollar now-a-days. The panic
over the investors, create a benefit to the traders or speculators.
