Two years ago, I was in my seat at the San Francisco airport. I was about to start an extended road show for my client. We’d have raised around $50 million. We held meetings across Europe, the US, Canada, and in Europe. We’d travel in less than two weeks, and it was the most important time.
Like always, I began contemplating the future. Making sure that flights were booked and hotels were booked Car services notified clients, clients were reached, accounts established and documents handed over. Important were the details . . . Sometimes, a small detail could be what made the distinction between a successful meeting and one that was great.
Then I thought about London.
I’d probably need four currencies for this trip, possibly five. US Dollars to travel between New York and Boston. Canadian Dollars to cover charges for Vancouver or Toronto. British Pounds to London. Euros for Paris. If everything goes well . . . Two meetings would be held in Switzerland that would need Swiss Francs.
In the following week, I landed at London Heathrow airport. The first thing I did was bring the US dollars to an exchange point where I then gathered the other currency I’d require.
These kinds of exchanges are common in the world’s financial markets. In excess of $2 trillion of dollars are exchanged every single day. For the sake of context, it’s more than all the stock markets across the world together. Such transactions occur across the globe thousands of times each day. Some are huge, and others aren’t However, they all are influenced by the ever-changing exchange rates.
It is believed that the US Dollar is the closest thing we have to a currency that is global. We are the most developed economy worldwide and our greenbacks are floating all over the world. The currency is so well-known that numerous countries adjust their exchange rates to match ours.
In March it was a bleak moment for the US Dollar. The dollar was falling for a number of years. Every time it fell, the demand for goods rise. I’m not able to go into the reasons I’m sure you’ll agree with me. The dollar’s value dropped and the world began to shift more of its money into commodities.
The prices of oil were at the record.
US consumers paid over $3.50 for one gallon of gasoline and it was going to get more expensive. Prices were increasing each day, as the trend of inflation was gaining momentum. It couldn’t have come at the right moment. The demise of the US housing market was pulling down banks and financial institutions. The economy was on brink of an implosion.
After that, Bear Stearns went insolvent.
The company was soon sold to JP Morgan, averting certain catastrophes. The move alone protected the US markets from collapse. However, the damage was already done. The negative news drove the US Dollar lower. Every tick lower in the US Dollar seemed to drive the price of oil up. Higher oil drove inflation fears. With the economy slowing . . . We could have seen a return to inflation.
The month of May appeared as if we’d reached the bottom of the dollar. The worst news from the economic world included rising prices for commodities and a decline in confidence in the consumer. But the dollar was able to hold its position . . . There was a shift that few noticed. We’d hit a bottom.
Global issues have started to get front-page press.
In mid-summer, a few of the currencies of minor importance began to struggle. In mid-summer, the Bank of Vietnam devalued their currency – called the “Dong” by 2 percent. They also increased their rates of interest to 14% to try to reduce inflation. In the past time, Vietnam saw prices increase by over 25% – even if you think it’s bad in the US.
Then, news came from India.
The Central Bank of India started fighting against inflation that was beyond control. Recently, they raised interest rates to over 8 percent in order to reduce the rate of inflation.
In June In June US Dollar started strengthening.
In the course of their meeting, Federal Reserve met and held the interest rate constant. This was the first occasion in nine months that they held rates the same. However, they continued to talk aggressively talk about inflation. They also noted that fuel and food costs were a major cause of inflation within the US.
There’s no need for economic news . . . What does this mean?
Two things that I learned were important to me. By keeping rates steady, the Fed showed that the economy was expanding. This also means that the liquidity measures helped alleviate the credit crunch. Another important point to consider was that inflation was a significant problem.
This was a great news/bad news moment.
A good thing for The US Dollar as the natural remedy to the problem of inflation is rate hikes. Unfortunately for consumers, we’ll need to witness an ongoing and strong surge in inflation before Fed will take action. With the Fed currently focusing on inflation, and the economy still in a state of uncertainty, but stabilizing it is no surprise that it’s no surprise that the US Dollar started a rally.
In the past two weeks, we’ve witnessed a rise of over 10 percent within the US Dollar . . . Something I’m hoping will last until the final days of the calendar year.