The US dollar fell below the psychological threshold of $ 1.15 per euro against the euro. It is thus the strongest in almost a year and a half. Not long after the US authorities released data on October inflation.
Inflation in the US is breaking 30-year records, but the US dollar is still strengthening. Given the economic lessons, this development may seem paradoxical. After all, the increase in the inflation differential should cause the currency of the country in which inflation is to reach ever higher levels to weaken adequately in nominal terms. But the dollar is moving exactly the opposite.
There are several explanations for such a development. First, inflation in the euro area is also rising month by month, so the inflation differential is not widening as it might seem at first glance. Another reason is the fact that inflation wants to invest in stocks. And as demand for the US grows, so does the demand for the currency in which the stock is traded.
Last but not least, the US Fed’s expectation of a gradual tightening of monetary policy plays a role. Investors are therefore buying the dollar in the hope that it will be even stronger in a few months, and so they will earn money from it. The dollar had apparently not said the last word.
