Market Overview [39] - A Falling Dollar (?)
Dear readers,
Welcome back to the Market Overview, where we provide technical and sentimental analysis about financial markets. On top of that, we deliver crucial market information that can influence financial markets to be always a step ahead of major market movements.
In this overview we wanted to take the time to explain why we believe that the value of the dollar is about to fall after its multi-month run.
There is no hard and fast rule about what will happen to the value of a currency during a deep recession. However, a currency is likely to fall because country becomes a less attractive place to invest.
Economic theory behind the value of a currency in recession
Suppose one country, e.g. the US, enters a deeper recession than all its other competitors. How might we expect the currency to behave?
Recession and interest rates. If the US enters a recession, then we would expect US interest rates to fall compared to other countries. This would make the US less attractive for investors to save money. Hot money flows are likely to leave the US and move to countries with higher interest rates. If people move money out of the US, they will sell the dollar and buy other currencies, causing a fall in the value of the dollar. Therefore, in theory, we might expect a recession to cause a fall in the value of the currency.
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