The following is a quote from The Economist (Dec 3, 2016) The dollar...

The following is a quote from The Economist (Dec. 3, 2016): â€œThe dollar has been gradually...

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Finance

The following is a quote from The Economist (Dec. 3, 2016):
â€œThe dollar has been gradually gaining strength for years. Butthe prompt for this latest surge is the prospect of a shift in theeconomic-policy mix in America. The weight of investorsâ€™ money hasbet that Mr. Trump will cut taxes and spend more public funds onfixing Americaâ€™s crumbling infrastructure. A big fiscal boost wouldlead the Federal Reserve to raise interest rates at a faster rateto check inflation. Americaâ€™s ten-year bond yield has risen to2.3%, from almost 1.7% on election night. Higher yields are amagnet for capital flows.â€
There has also been Fed attempts to raise interest ratesrecently.
EXPLAIN IN A PARAGRAPH: Will higher US interest rates strengthenthe USD? Agree or disagree. Explain fully. Also, will the resultingchange in the USD (from your analysis) be consistent with PresidentTrumpâ€™s overall economic perspective on trade and USmanufacturing.
Please address these questions from a Jan. 1, 2017 perspectivefor that time period.

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4.1 Ratings (670 Votes)

I agree that the higher US interest rates strengthen the USD When the Fed raises interest rates investors looking for return tend t sell assets denominated in foreign currencies and buy dollar denominated assets See Answer

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