The value of the US dollar has fallen to its lowest level in 2.5 years


(Agence Ecofin) – Yesterday, the index that measures the value of the US dollar against other currencies fell to 9.75 pts, according to market data.

This is the lowest level since the beginning of August 2018. This downward trend which started in mid-May 2020 in the form of a short-term correction seems to have become permanent. When the coronavirus crisis first erupted, the financial world faced a huge challenge and, in this context, all categories of investors needed the US dollar. The situation quickly led to an increase in the value of the currency but later, as market participants realized the magnitude of the problem, the US currency was gradually abandoned in favor of assets such as gold, even Bitcoin.

Investors are drawn to the strong performance of stock indices such as the S&P 500, which includes the 500 largest companies listed on the US financial markets. However, this progression hides significant disparities, and above all a risk of a speculative bubble. The second safe haven for investors, Treasury bills and bonds, are now posting low yields.

Despite Joe Biden’s victory and the return to what can be called “more predictability in the American administration”, economic indicators in the United States are not reassuring. The number of Covid-19 cases has already reached 4 million in the country. That’s less than 1% of the population, but given the number of deaths recorded, it creates deep panic.

Sales on Black Friday fell 52%. There has been a slowdown in activity in manufacturing areas of Chicago and Dallas, and analysts expect the central bank to continue to be relatively cautious.

For Africa, a weak dollar is ultimately a good thing. The continent’s economy has been hit, despite a low level of infections. Covid-19 impacted the region’s exports, which declined in volume, reducing foreign exchange earnings. If, in addition to the fall in income, we have to manage a weaker dollar, this generates a double decline which will have an impact on the money supply of African countries.

The good news is that a weaker dollar has a positive impact on external debt service. The constraint to mobilize resources to pay off the debt is less, and the risk of inflation is also reduced.

In the meantime, it is not possible to say what the effects of a prolonged decline in the US dollar might be. On this point, the economic specificities of each country will be decisive.

Idriss Lingé

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