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Economics-A Brief Analysis of USD Liquidity

Jun 15, 2022

US Dollar Index and Liquidity

Previous article: " Economy - QT Interpretation of U.S. Interest Rate Raise (Notes) ", the reverse operation when shrinking the balance sheet and QE

U.S. dollar index: an indicator of the strength of the U.S. dollar, an index of global capital trends, the stronger the demand for U.S. dollars, the higher the U.S. dollar index will be.
The US dollar index is composed of a basket of currencies (57% euro, 13% yen, 12% sterling, 9% Canada, 4% Swedish franc, 3.6% Swiss franc), the weaker euro last year drove the dollar up
Dollar Index Smile Curve: When the U.S. economy is extremely weak or strong, the U.S. dollar index rises; when the U.S. economy is not particularly strong relative to other economies, the U.S. dollar index falls.

The U.S. dollar enters the interest rate hike cycle, and the interest rate is high, and the U.S. dollar index will rise, and funds will run back to the United States to earn interest. On the contrary, if the interest rate is cut, the dollar will flow out of the United States and run back to other countries. The epidemic has caused a lack of dollar liquidity supply (epidemic, cash is king) , became a hot commodity, the dollar index strengthened), interest rates fell to 0, reserves fell to 0, and money was thrown.

Long-term: Changing the structure of income distribution, supplementing the purchasing power of the bottom, and changing the way of debt-driven growth are the fundamental solutions to the problem.