The growth of global dollar seems to have stagnated with what is heading for its second daily decline, but analysts agree that the US currency will remain strong, supported mainly by the reduction in the possibilities of a cut in interest rates in the short or medium term by the Federal Reserve (Fed). Like everything, this means advantages and disadvantages in the global exchange market, what are the Uruguay?
Although the days of Wednesday and Thursday seem to be the exception that confirms the rule, with drops in the dollar that go in the opposite direction to the increases that have been taking place for much of the year so far, the currency would continue to be strong. On the one hand, thanks to macroeconomic context of USA that does not create the right environment for a cut in reference interest rates, which are at their maximum range—from Fed understand that progress in slowing the inflation could have stagnated—so investments continue to give good returns.
On the other hand, because the situation of international uncertainty, caused by the conflict between Israel and Iran and the risk of violence escalating to the regional level in Middle East, They put the dollar back in the center like haven of valueso demand is high.
Therefore, despite the fact that the dollar index fell 0.11% to 105.84 units, the greenback is expected to remain close to its maximum of five and a half months.
Positive and negative impacts for Uruguay
For Uruguay, as well as for most countries in the world, this strength of dollar It represents pros and cons for its own exchange market and, above all, for its economy.
Among the advantages, the most important is the possible boost of dollar at the local level, while the Uruguayan exchange rate It moves, in most cases, in a manner similar to global behavior. Therefore, if the US currency remains strong, the currency may have more room for recovery.
At the close of trading yesterday it had its worst daily drop so far this year, when it fell 1.32%, breaking a streak of five consecutive positive days and trading at 38,707 pesos, according to data from the Central Bank of Uruguay (BCU).
But other positive aspects of the strength of the global dollar is that it adds the component of performance above that of haven of value safe for those people who save and invest in this foreign currency. Whichever reserve currency of most of the world’s central banks is also significant, and in the local case, it means a growth in reserves.
On the other hand, the strength of dollar It is not well received in emerging markets, which also operate as a reference for Uruguay. This is not only because of the inverse relationship that exists between the dollar index and the MSCI Emerging Markets, but also because many emerging countries, as well as maintaining their reserves in dollars, also borrow in this currency. Therefore, an appreciation of the greenback makes the payment of due dates.
Likewise, most of the raw Materials are quoted in Dollars, as well as the assets of import and inputs for production, so if the US currency rises, that makes its purchase more expensive. Consequently, for the country there are two problems: first, the investment necessary to produce, as well as the goods resulting from production, becomes more expensive, so demand may be reduced; and, secondly, the deterioration of the competitiveness Uruguay as costs add up.
These factors could be offset by greater strength of the dollar in the local exchange market; something that does not seem to be close to happening or, at least, not at a level greater than what is happening globally.
Source: Ambito
