The US dollar is continuing its slide against other major currencies, including the euro, with early Thursday European trading seeing a continued drop in currency-currency value attributed to fading bond yield support.
The euro hit 1.21 euros per USD, close to surpassing highs unseen since February, with the British pound reaching 1.39 USD, its strongest showing since 18 March. The dollar can buy 108 Japanese yen, edging toward a seven-week low, while the onshore yuan has hit 6.48 per dollar – the Chinese currency’s strongest level since 12 March. The Canadian, Australian and New Zealand dollars have also ticked up against the dollar this week amid improving economic outlook projections in all three nations.
Overall, the dollar index tracking the greenback’s health against a basket of half a dozen other major currencies saw a decline to 91.013 points, slightly above the seven-week low of 90.856 seen Tuesday.
Next week’s meeting of the US Fed is expected to offer additional trading cues. Washington lawmakers have pumped over $6 trillion into the economy over the past year to tackle the economic crisis caused by lockdowns, business closures and job loss associated with the coronavirus. The new cash, which added trillions to the US’s already gargantuan federal debt (which recently surpassed $28 trillion) has led to fears of serious inflationary pressures – a phenomenon America has traditionally been shielded from thanks to its status as the de facto world reserve currency.
Last month, Clinton-era Treasury chief Larry Summers described the federal government’s current macroeconomic policy as the “least responsible” he’s seen since the early 1980s, and warned that the US may be heading toward a new stagflationary crisis – i.e. a period of high inflation combined with economic stagnation.
US federal debt surpassed 100 percent of GDP in the spring of 2020, with debt expected to climb to 110 percent of GDP by the end of this year. Combined government, business and household debt surpassed over 250 percent of GDP last year, before the coronavirus’s impact was fully felt.
Last month, amid fresh threats of economic sanctions from Washington, Russian Foreign Minister Sergei Lavrov encouraged Russia and China to continue moving away from the dollar in trade and payment systems, and accused the US of using its currency to promote an “ideologized agenda aimed at maintaining their dominance by holding back the development of other countries.”