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HomeSorted by levelC2 - MasteryWhy the dollar is strong and why that is a problem?

Why the dollar is strong and why that is a problem?

[Reading level: C2 – Mastery]

Here are a few familiar descriptions of the dollar: “the cleanest shirt in the laundry basket”, “the least-ugly mug in a beauty contest”, “the one-eyed man in the kingdom of the blind”. Nobody, it seems, loves the dollar; they just really dislike the alternatives. And that aversion is only growing. The DXY, an index of the dollar against half a dozen major currencies, is at a 20-year high. Among the dirtiest of the dirty linen are sterling, the euro and the yen.

 

Every fresh lurch upwards prompts some big questions. First, what is driving it? Much of the recent rise reflects differences in monetary policy. At the turn of the year, the Federal Reserve became more determined to tackle inflation. A series of interest-rate increases since then, with more expected, has turned the dollar into a high-yielding currency. Lofty interest rates are a draw to global capital, which in turn has pushed up the dollar.

 

The dollar is also a refuge in troubled times. Scared investors tend to reach for the currency. And high oil and gas prices are generally bad for energy importers, such as Europe, but good for energy exporters, such as America. The handful of currencies that have kept pace with or beaten the dollar this year tend to be those of energy-producing countries.

 

In short, the dollar is the go-to currency largely because America has proved a reliable source of economic growth. That is particularly true now. Europe is edging closer to recession. The closely watched purchasing-managers’ index suggests the euro-zone economy shrank in August.

 

Less noticed is that Asia is also losing steam. Sluggish export growth is the latest worry for China’s economy, the vitality of which has been sapped by a property hangover and the country’s zero-covid policy. China’s weakness is apparent across Asia. Industrial output fell sharply in South Korea, Taiwan and Japan in July. Export orders have slumped. High energy costs have not helped. The currencies of these countries have wilted against the dollar. In Japan, where the central bank has stuck with ultra-low interest rates, the authorities have hinted that they may intervene to halt the yen’s slide. In China there has been renewed action to support the yuan.

 

So is the dollar now a problem?

In principle, its strength is a remedy for unbalanced global growth, since it gives European and Asian exporters an edge over domestic producers in the stronger American market. In practice, a strong dollar makes matters worse. It squeezes global credit, because countries and companies beyond America’s borders borrow in dollars. So when the dollar rises, it becomes more expensive to pay back debts out of local-currency revenues. For many emerging-market economies, the higher cost of dollar borrowing trumps the boost to exports they get from a weaker currency. Dollar strength may not even be a boon for rich countries, says Steve Englander of Standard Chartered, a bank. Exporters in Europe are hamstrung by energy disruptions, so cannot take full competitive advantage of a favourable exchange rate.

 

Will the dollar ever weaken? For that three conditions need to be met. First, the global growth gap has to narrow. A hard landing in America won’t do the trick. A synchronised downturn in all regions of the world would only spark a run to the safety of the dollar (although the beleaguered yen might finally catch a bid). What is needed is for growth prospects outside America to improve. A second condition is a rapid reduction in price and wage pressures in America. This would allow the Fed to ease off the monetary brake, withdrawing some yield support from the dollar. The third condition is related to the first two: a weaker dollar requires some kind of good news on global energy. Absent that, it is hard to see Europe closing the growth gap with America.

 

None of these conditions seems likely to be met soon. Until they are, the dollar will stay mighty – but only because the yen, the euro and the rest are so puny.

 

Source: https://www.economist.com/finance-and-economics/2022/09/08/why-the-dollar-is-strong-and-why-that-is-a-problem

WORD BANK:

mug /mʌɡ/ (n – inf): kẻ ngờ nghệch, dễ bị lừa

alternative /ɒlˈtɜː.nə.tɪv/ [B2] (n): lựa chọn thay thế

aversion /əˈvɜː.ʒən/ (n): ác cảm

currency /ˈkʌr.ən.si/ [B1] (n): tiền tệ

linen /ˈlɪn.ɪn/ (n): vải lanh

sterling /ˈstɜː.lɪŋ/ (n): đồng bảng Anh

lurch /lɜːtʃ/ (n): di chuyển đột ngột, thay đổi không bình thường

prompt /prɒmpt/ (v): khiến (người ta phải đặt ra câu hỏi)

monetary /ˈmʌn.ɪ.tri/ [C2] (adj): thuộc về tiền

tackle /ˈtæk.əl/ [B2] (v): giải quyết

inflation /ɪnˈfleɪ.ʃən/ [B2] (n): lạm phát

interest rate /ˈɪn.trəst ˌreɪt/ (n): lãi suất, tỷ suất

high-yielding /haɪj iːl.dɪŋ// [C2] (adj): có lợi suất cao

lofty /ˈlɒf.ti/ (n): to lớn, cao

draw /drɔː/ (n): sức hút

refuge /ˈref.juːdʒ/ [C2] (n): nơi ẩn náu

the/a handful of sth /ˈhænd.fʊl/ (quant): một số ít, một chút

keep pace with sb/sth [B2] (v): theo kịp

go-to (adj): thứ/người tốt nhất để tìm tới cho một mục đích nào đó

edge closer to sth /edʒ/ (v): tiến gần đến cái gì

recession /rɪˈseʃ.ən/ [B2] (n): suy thoái

shrink /ʃrɪŋk/ [B2] (v): thu hẹp

lose steam (v – inf): sa sút

sluggish /ˈslʌɡ.ɪʃ/ (adj): chậm chạp, trì trệ

vitality /vaɪˈtæl.ə.ti/ [C2] (n): sức sống

sap /sæp/ (v): làm cho yếu đi

hangover /ˈhæŋˌəʊ.vər/ (n): sự ốm yếu

apparent /əˈpær.ənt/ [B2] (adj): rõ ràng

slump /slʌmp/ (v): sụt giảm (đột ngột)

wilt /wɪlt/ (v): héo, trở nên yếu đi

hint (v): gợi ý

intervene /ˌɪn.təˈviːn/ [C2] (v): can thiệp

halt /hɒlt/ (v): chặn, dừng

slide /slaɪd/ (n): đà trượt giá

in principle (adv): về nguyên tắc, trên lý thuyết

remedy /ˈrem.ə.di/ [B2] (n): phương pháp cứu chữa, biện pháp khắc phục

an edge over sb/sth /edʒ/ [C2] (n): lợi thế so với ai/cái gì

squeeze (v): bóp nghẹt

revenue /ˈrev.ən.juː/ [C1] (n): nguồn thu, doanh thu

emerging market (n): thị trường mới nổi

trump /trʌmp/ (v): đánh bại

a boon for sb/sth /buːn/ (n): cái lợi cho ai/cái gì

hamstring /ˈhæm.strɪŋ/ (v): ảnh hưởng

favourable /ˈfeɪ.vər.ə.bəl/ [B2] (adj): thuận lợi

exchange rate /ɪksˈtʃeɪndʒ ˌreɪt/ [B1] (n): tỷ giá hối đoái

do the trick [C2] (v – inf): có tác dụng

synchronise /ˈsɪŋ.krə.naɪz/ (v): đồng bộ

downturn /ˈdaʊn.tɜːn/ (n): suy thoái

spark /spɑːk/ [C2] (v): khuấy động, khơi mào

beleaguer /bɪˈliː.ɡər/ (v): gây rắc rối

catch a bid (v): tăng lên (giá, giá trị)

ease off sth (v): giảm bớt (cái gì đó căng thẳng)

monetary brake (n): lực hãm tiền tệ

mighty /ˈmaɪ.ti/ [C2] (adj): hùng mạnh

puny /ˈpjuː.ni/ (adj): yếu đuối


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