The dollar has been on a bit of a rally lately, making up lost ground against currencies like the Japanese yen, and is frequently at the center of the news when Federal Reserve policy is being discussed. Monetary policy in general continues to be a concern for the world’s leading economies, as countries are worried about an overly strong currency in the face of tepid growth. A weak currency means greater exporting opportunities, in turn leading to a greater possibility of growth for that economy. Some companies worry that a stronger dollar will depress earnings because their international profits will be worth less when converted back into dollars. Whatever the ramifications, there are reasons for the dollar’s growth, and here’s a look at five of them:
1. The End of Easing
Most fundamentally, markets are scared that the Federal Reserve’s quantitative easing program could be on the way out sometime next year, with “tapering,” or a slowdown in asset purchases, happening as soon as this fall should the economic conditions warrant it.
The talk of tapering alone sends the markets into a tizzy, causing interest rates on U.S. bond yields to spike and making the hiked-up rates more lucrative to investors from all parts of the globe, thus pushing up the dollar.
