The value of the US dollar rose again on Tuesday and finally broke 20-year highs. The ICE dollar index, which maps its price against a basket of 6 major world currencies, exceeded 110.5 points after 4 p.m. today, and for the first time since June 18, 2002, it has moved above 110 points during a trading day. According to Ebury analysts, the reason for the increased interest in the US currency is a combination of strong data from the US economy, which significantly increase the chances that the FED will raise interest rates by 0.75 percentage points at its September meeting, and at the same time, deepening concerns about restrictions on Russian natural gas supplies to European Union countries.
“In their August report on the future development of the US dollar, our analysts expect the FED to raise rates by half a percentage point at its September meeting, however, new data from the US economy increase the chance of a further increase of 0.75 points. This, combined with the re-interruption of gas supplies to Europe via the Nord Stream 1 pipeline, which increases pressure on the European currency, creates room for further short-term strengthening of the dollar.” explains Tomáš Kudla, sales director of Ebury in the Czech Republic and Slovakia. At the same time, he draws attention to the fact that in the basket of currencies against which the dollar is measured in the ICE index, the euro has more than half its weight. Any weakening or strengthening of the common European currency will thus be significantly reflected in the value of the dollar index. The second half of the index is then represented by the exchange rates of the dollar against the Japanese yen, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc.
Thanks to the interventions of the Czech National Bank, the dollar is still one crown cheaper than in spring 2020
Although the value of the US dollar broke its 20-year highs in the first days of September, the Czech crown is still traded roughly one crown below the level of spring 2020, when the covid-19 pandemic broke out. “Like other currencies from Central and Eastern Europe, the koruna comes under pressure in times of uncertainty, and its value against the US dollar thus falls significantly faster than, for example, the value of the euro. However, in recent months, thanks to monetary interventions, the Czech National Bank basically fixed the exchange rate of the koruna against the euro, which prevents the koruna from falling further. However, if the CNB were to stop its interventions, the koruna could weaken significantly,” says Tomáš Kudla, adding that on Wednesday 7 September the Czech National Bank will publish the volume of interventions for August.
Ebury expects the dollar to start weakening next year
According to the August Ebury G10 FX Forecast report, which analyzes the likely development of the value of the 10 most important world currencies, the dollar may strengthen further in the short term. Next year, however, it should rather weaken, because the FED will probably end its policy of raising interest rates this year, while other major central banks, such as the ECB, which started tightening monetary policy much later, will probably continue to raise rates continue. However, the situation surrounding the supply of Russian gas to Europe will be important for the development of the euro and the US dollar. Repeated interruptions or even cessation of its supplies will lead to a weakening of the European currency and, conversely, to a strengthening of the dollar.
Ebury is a fintech company offering financial solutions focused primarily on small and medium-sized businesses. It specializes in international payments and collections, offering foreign exchange in over 130 currencies for both major and emerging markets, as well as cash management, trade finance and currency risk management strategies.
The company was founded in London in 2009 by Spanish entrepreneurs Juan Lobat and Salvador Garcia. Ebury’s global presence has grown to a network of 32 branches in 21 countries and more than 1,300 employees. The volume of transactions carried out by Ebury reaches US$ 21 billion annually.
During its history, the company has won more than 20 international awards, including the Financial Times 1000 Fastest Growing Companies in Europe 2020 and The Sunday Times Tech Track 100. All these awards place Ebury among the leading European fintech companies.