The euro remains a resilient currency and the euro union has been firming up. While the central bank commitment to maintain the euro has not been significantly tested since a decade ago, a weaker euro will add to the inflationary pressures in the region and drive up the price of imports. The European Central Bank (ECB) has no explicit target for its exchange rate, which means it cannot arrest the euro’s decline with words alone.
U.S. dollar strength
While it’s possible that the U.S. dollar won’t become stronger anytime soon, the ECB’s announcement this week could change the direction of currency rates. If a recession occurs in Europe, the Federal Reserve might be forced to rethink its monetary policy and cut interest rates, decreasing the flow of capital into the U.S. economy. The ECB’s announcement is a good thing for the dollar, but it could hurt some big companies.
The stronger dollar is beneficial for travelers who are looking to take a vacation to Europe or purchase goods from abroad. In addition, a stronger dollar may lower the price of commodities, which is especially helpful for American travelers. Moreover, it could ease the relentless inflation that has driven household expenses skyrocketing. Still, it’s worth noting that a stronger dollar could have negative consequences for global trade.
A recent report from Deutsche Bank indicates that the U.S. dollar is now the “world’s most expensive currency”. The bank’s foreign exchange positioning indicator shows that the dollar is now at its highest levels since the height of the Covid-19 pandemic. However, many analysts remain skeptical of the possibility of the dollar gaining parity against the Euro. Some believe that the euro will continue to weaken, despite Fed policymakers signalling a more aggressive pace of policy tightening.
The Euro has been on a downward trend for almost a year. It is currently around $1.05, but was around $1.22 in June. Earlier this week, it fell below $1.03. This could spell a change for the Euro.
European Central Bank’s plan to raise interest rates
The European Central Bank (ECB) is facing a tough dilemma as it looks to curb inflation while tackling the risk of recession. Gas prices have been soaring and household disposable income is dwindling faster than the stagflation that plagued the 1970s. This is one reason why the ECB is considering a rate hike – despite the fact that a larger hike would dampen wage growth. The ECB also believes that raising rates now would prevent rising prices from being baked into expectations. It also wants to show that it’s fighting inflation and not letting it slide.
The ECB is moving cautiously because the recovery in the eurozone economy has been slow. Many officials have been worried that a sharp rise in borrowing costs would hurt the economies of Southern Europe. They are also concerned that if they delay rate hikes, it would cost them more money in the future.
As the value of the US dollar dropped during the global credit crisis, the Euro gained in value. This has led to a debate on whether the Euro will soon challenge the US dollar for dominance of the global reserve currency. Former US Federal Reserve chairman Alan Greenspan has said the Euro is a rival to the dollar and will eventually overtake it as a major reserve currency. A 1995 econometrical analysis predicted that the Euro would replace the dollar as the world’s reserve currency by 2020, but only if the remaining EU countries adopted the euro.
However, the Euro has not recovered as much as the US dollar and it is still around $1.03 at the end of Aug. 2022. While the Euro has recovered from its slump in the second half of 2021, the US dollar has continued to rise due to rising interest rates and uncertainties in the global economy.
Chinese yuan under neo-Maoist rule
Despite the fact that Mao is revered by the Chinese Communist Party as its founder and is featured on every yuan banknote, many neo-Maoists have criticized him and his policies. Some blame his policies for famine and millions of deaths. Others blame his economic policies, saying he was personally responsible for the country’s economic downfall. Neo-Maoists dismiss these criticisms as revisionists. They also defend Mao in online articles and on other platforms.
During the “Great Leap Forward” in 1958, Mao’s policy included land reform, agricultural reform, and education for peasants. These policies were designed to return the country to a simpler, more equal society. Today, tens of thousands of Mao devotees make annual pilgrimages to Mao’s birthplace and hometown. In one town, villagers spent nearly 3 million yuan to construct a giant golden statue of Mao. The statue, however, was eventually removed by local authorities.