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Business News/ News / India/  'Mighty dollar has gotten mightier': What Anand Mahindra said about the currency
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'Mighty dollar has gotten mightier': What Anand Mahindra said about the currency

The dollar index has been strong due to multi-decadal high inflations in the US that have pushed Federal Reserve to hike key interest rates aggressively in the past few months.

The greenback has touched a 20-year high. Its upside is more than 10% this year against a basket of currencies. (AFP)Premium
The greenback has touched a 20-year high. Its upside is more than 10% this year against a basket of currencies. (AFP)

The dollar is currently at its strongest level in two decades, an effect of the latest challenging macroeconomic environment. It is fair to state that the appeal of the American currency tends to be higher in times of turmoil. And the recent global risks have showcased a great example of how the greenback becomes attractive and a source of comfort resort for investors. However, this also leads to the devaluing of other currencies around the world. Taking note of the forex performance, Anand Mahindra, the chairman of Mahindra Group believes the dollar is the currency of safety.

Mahindra through his Twitter account on Monday, said, "The ‘mighty’ dollar has gotten mightier. Despite perceptions of the decline of American influence globally, the dollar is still the currency of safety."

He added, "We seem to be only in the middle of the list of depreciated currencies."

Mahindra had tweeted a The New York Times report which highlighted that the dollar lubricates the global economy. It is one side of about 90 percent of all foreign exchange transactions, accounting for $6 trillion in activity every day before the pandemic, from tourists using their credit cards to companies making major international investments.

The greenback has touched a 20-year high. Its upside is more than 10% this year against a basket of currencies.

As per the report, the Japanese yen has dived to a 24-year low against the American currency and the euro dipped to parity, a one-for-one exchange rate, with the green for the first time since 2002. Not just these major currencies, but in fact, either the Colombian peso or the Indian rupee, the Polish zloty or the South African rand, and others - have probably lost value against the dollar, especially over the past six months or so.

The dollar index has been strong due to multi-decadal high inflations in the US that have pushed Federal Reserve to hike key interest rates aggressively in the past few months. The US has clocked inflation of 9.1% - the highest since November 1981. The Fed is again set to announce its policy outcomes later this week, the another sharp rate hike is on the table.

It's not just US Fed, other major central banks are also tightening their monetary policy with steep rate hikes. The European Central Bank is expected to hike key interest rates for the first time since 2011 later in the week, while RBI is likely to make another hike in repo rate in August policy.

Ritika Chhabra- Economist and Quant Analyst at Prabhudas Lilladher said, "The US inflation number for June came in at 9.1% y-o-y vs. market expectation of 8.8%. On month on month basis, it advanced 1.3%, again higher than expectation of 1.1%, led by high prices of energy, food and rent. The momentum of both headline CPI and Fed’s preferred inflation gauge, core CPI accelerated compared to the previous month."

Back at home, on Monday, the Indian rupee hit a record low of 80.075 against the US dollar in the early deals of the interbank forex market. However, the currency pulled back and was trading at 79.895 per dollar from the previous close of 79.785. Its day's range is from 79.714 and 80.075.

Meanwhile, the US dollar index was slightly lower by 0.4% to 137.99 as investors reacted to o strong US core retail sales figures and as they await US Fed policy.

According to Megh Mody- Commodities and Currencies Research Analyst at Prabhudas Lilladher, US Fed is likely to hike interest rate next week on the back of slipping inflation which now stands at 9.1%. A hike of 75bps is likely next week by FED which is factored in. Any further aggressive stand by the central bank can lead to sell off in the global equities and commodities.

While Chhabra added, "With inflation pressures intensifying, future markets are now pricing in the possibility of a 100bps hike in this coming July FOMC meeting instead of 75bps hike that was earlier priced in. While the probability of 100bps is comparatively low, at 33%, if the Fed eventually decides to go for a 100bps hike, it will be bad news for emerging markets like India. FIIs have been aggressively pulling out money from India since the start of this year. A higher rate hike than what consensus is expecting can accelerate the redemptions by FII, creating a further downside for the Nifty. Higher than anticipated rate hike will also push up the value of the dollar, thus depreciating INR further."

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Published: 18 Jul 2022, 02:05 PM IST
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