Jakarta, CNBC Indonesia – The monetary tightening policy of the central bank of the United States (USA) caused the US dollar to still show its “power” to this day. So how long will the US dollar continue to strengthen?
Senior economist Chatib Basri explained that in economic theory there is what is known as exchange rate determination. However, in various empirical studies at Harvard and the University of California, Berkeley, this theory has failed to “predict” exchange rates.
“That is why I often joke that if an economist knows what the future exchange rate will be, he has a great sense of humor because he is most likely wrong,” Chatib explained as quoted from his Instagram account, Wednesday (16/11/2022 ).
However, Chatib said, there are three things that can be understood about the US dollar’s tendency to strengthen going forward. “There are at least three factors,” she said.
First, it is the difference or growth or economic growth between the United States (US) and Europe.
Chatib said that even though the US is experiencing a potential recession, its economic condition is relatively better than Europe. “This explains why the US dollar has strengthened against the euro,” she said.
The second factor, according to Chatib, is that the United States is currently a net exporter of energy and raw materials. So that when energy and commodity prices rise, the trade balance will strengthen and result in a strengthening of the exchange rate as well.
The third factor that strengthened the dollar was the efforts of the US central bank (the Fed) to overcome inflation by raising interest rates, returning capital to the US by itself, and the dollar’s exchange rate increased.
“These three factors at least determine whether this strong dollar phenomenon will continue to happen or not, we’ll see,” Chatib said.
As is known, the exchange rate of the rupee weakened again against the US dollar on Wednesday (11/16/2022) at the start of trading. Although the US dollar index fell again last Tuesday.
The rupee opened trade weakening 0.1% to IDR 15,550/US$, according to Refinitiv data. The depreciation of the rupee increased 0.23% to 15,570 IDR/USD as of 9:03 AM WIB.
Yesterday, the US dollar index fell 0.24% to 106.44, its lowest level in two months. The index, which measures the strength of the US dollar, has lost 6 of the last 8 trades, for a total of 5.8%.
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