US dollar remains strong due to high interest rates

THE weakening Ringgit against US dollar is due to the Federal Reserve retaining the US interest rate at the current level.

Sunway University economics professor Dr Yeah Kim Leng said it was expected that the Federal Reserve would reduce the interest but it decided against doing so.

He added it was expected to reduce the interest rates in March which has now been postpone and it would be likely to sometime in the middle of this year.

He said this is down to the better than expected US jobs data and higher wages.

“The Federal Reserve decided that if interest rates were reduce it could lead to high inflation which could have a detrimental impact,” he remarked.

“The US economy also strengthen thus forcing the Federal Reserve to decide against any interest rates cut.”

He said the delay in rates cut is because the US economy continues to rebound.

The economics professor said the US dollar will remain strong not only against the Malaysian currency but also against all other major currencies in the world.

He said it was initially expected that the US economy would weaken thus forcing the Federal Reserve to cut interest rates.

Yeah said instead the US economy has picked and this had forced the Federal Reserve to delay the rates cut to protect the US economy.

“Triggering inflation with an interest rate cut has worried the Federal Reserve. They have taken a cautionary approach to protect the economy. They will continue to delay rate cuts until they feel there would no cause for inflation to go up and hurt the US economy,” he stated.

“The Federal Reserve has not ruled out any interest rate cuts but it will depend on the jobs and wage data.”

Yeah said as long as the US economy is in a strong position the Federal Reserve will hold off any interest rate cuts.

He pointed out the Malaysian currency remains in the same boat as any other major currency in the world, adding that as long as the US interest rates remain high the US dollar will continue to be strong.

He said only an interest rate cut by the Federal Reserve could help other currencies strengthen against the US dollar. – Feb 13, 2024


Main pic credit: The Star

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