Question 1

We discussed in class about the recent trend of the valuation of major currencies including U.S. dollar. Especially the article from The Economist, “The fate of the dollar will shape financial markets in 2019” presented some ideas on the causes of the recent dollar appreciation and also on some scenarios of possible trend of major currency values in near future.

a) (5 points) Explain the possible economic reasons why U.S. dollar appreciated against other major currencies including pound sterling, Euro and Japanese yen in 2018.

 b) (10 points) The author of the article presents two possible scenarios of dollar depreciation path over the next year or so, depending on the dynamics of three factors – i) Fed’s decision on interest rate, ii) trade dispute between U.S. and China, and iii) Euro-zone economy. Present your thoughts on the currency valuation change (i.e., whether will appreciate or depreciate) and its pace of the relevant economies (i.e., U.S. China, Europe, etc.) in light of those three factors.