The US dollar serves as the backbone of the global economy and is considered the safest currency to hold. So in times of uncertainty, investors like to stock up.
MIAMI (CNN) – The US dollar serves as the backbone of the global economy and is considered the safest currency to hold. So in times of uncertainty, investors like to stock up. What’s happening: The dollar rose to its highest level since spring 2020 last week as fears grew about how Russia’s war in Ukraine would ricochet through the global economy and financial markets. One reason for its sharp rise: Investors decided they didn’t want to hold euros anymore given Europe’s proximity to the conflict. They dumped the bloc’s common currency and bought dollars instead. “European markets are simply not attractive in this moment simply because of their geographical exposure to Ukraine and Russia,” ING strategist Francesco Pesole told me. Remember: US stocks have been doing way better than European shares since Russia’s invasion because America’s economy is more insulated from the war and its consequences. Natural gas prices in Europe hit record highs last week because of concerns about what will happen to energy exports from Russia. The United States, which is a major producer of energy itself, is getting slammed by higher costs, but to a lesser degree. The US economy also looks healthy despite high inflation: 678,000 jobs were added in February, data released Friday showed, smashing forecasts. Plus, the dollar got a boost after Federal Reserve Chair Jerome Powell said that the central bank aims to start raising interest rates later this month, even though the situation in Ukraine has clouded the outlook. Higher interest rates should help attract capital from abroad, especially if policymakers in Europe are forced to delay their own hikes for longer.
