The economists of Commerzbank analyze the advantage of US growth and its implications for the Dollar.
Only the US GDP seems to have returned to a path of sustained growth
The following picture of the Fed emerges: “If the US economy were to weaken after all, it wouldn't matter much whether inflation was a little higher or lower; the Fed would be inclined to cut the federal funds rate.” Note: This is just one of two channels through which US growth is relevant to USD exchange rates. The other is more direct: if US growth is significantly higher than that of other developed economies in the medium and long term, the capital invested in the US will be more profitable than that invested in other countries. And then the currency needed to acquire that capital – the USD – will also be more valuable.
After the post-coronavirus recovery phase, stagnation is the order of the day in most G7 economies. Only the US GDP seems to have returned to a path of sustained growth. This is nothing new. Japan, Italy and, to some extent, France have been unable to keep up with the US for some time. However, the United States has been surpassing Germany and Canada for several years, giving it a unique position among Western industrialized countries. The Dollar is also strong at the moment because the latest real economic data once again offers a very clear outlook. On the contrary, the US growth prospects – regardless of what is expected from the Fed, the ECB, the BoJ, etc. – is a key factor in the USD outlook.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
