Concerns over Local Currencies’ Strength Boost Dollar

Indications from around the globe of a more restrictive official stance toward capital flows and currency volatility have been contributing to a reduction in risk appetite in trading recently. Concerns in countries outside the U.S. and China are mounting over the weak Dollar and Yuan. Recently several emerging-market central banks have taken measures seen as an attempt to control their currency’s appreciation versus the Dollar. The link of the Yuan to the weakening Dollar continues to push the Chinese currency down, adding to pressure from China’s export competitors to let the Yuan appreciate.

Brazil, South Korea and Indonesia have unveiled this past week various measures and forms of capital control to help better manage foreign exchange risks and imbalances. These measures are seen as attempts to limit their respective currencies’ appreciation versus the Dollar.

As the U.S is the world’s largest importing economy and China is the world’s largest exporting economy the continuous weakness in these currencies is hurting exporters in competing countries. The exporters suffer both from erosion in profits as well as extreme competition from China which hinders global economic recovery.

This concern over the strength of local currencies aided the USD during Thursday’s trading and if the restrictive stance is set to continue, these one sided interferences with the exchange rate might provide a much needed boost to the Dollar.

source: forexyard.com