The USD has shown strong performances recently against its major peers, especially the British Pound and the Swiss Franc. For the time being, this has been attributed to the fall in the US Dollar’s price against major currency pairs, including the Euro, Yen, British Pound and Swiss Franc. Still, a considerable amount of speculation is being floated in the media about the possibility of another large capital outflow, which could hamper the progress of economic recovery and result in a loss of economic growth.
In the event of such a sharp depreciation of the USD against the major currencies, a large capital flight would be the result. Such a scenario would add fuel to the fire that is currently raging within the global financial market.
Several major financial markets have reported sizeable losses since the beginning of this year. The investment banks and other major financial institutions in the US have suffered significant losses, while even the major financial institutions that have been spared so far are not doing too well.
Also, it is but natural that a large capital outflow from all over the world would result in a further loss of economic growth. The current global economic situation has been marked by continuous troubles in the financial market, with many people speculating that the events may not end in the near future.
The weakness that is being witnessed in the financial market today is only the beginning, and even further declines are anticipated as capital flow slows down, or even contracts completely. When it comes to the matter of global economic growth, there are more than a few fundamental reasons for concern.
This is because the capital outflow is taking place at the very time when the fiscal health of governments around the world is extremely weak. Many experts have noted that all of the signs are pointing towards a full-blown depression or worse.
Lack of investment in infrastructure maintenance is one reason for the deterioration of the political uncertainty and failure to implement fiscal policy. As a result, the fiscal policy instruments to protect the stability of the financial market are no longer functioning properly.
Secondly, the pace of capital outflow is also considerably high. At present, investors have become a lot more cautious about their investments, and they are no longer too keen on the common stocks of companies.
Another cause for concern has been the fact that the fiscal policies and the exchange rates in China and India have been influenced by political events. At present, the Chinese government has expressed its willingness to allow the devaluation of the Yuan, but the Chinese government is currently faced with a crisis on its doorstep, as it struggles to control the number of people entering the country illegally.
At the same time, the political instability in India is also related to the capital outflow that has taken place recently. Since the Indian government has failed to provide adequate security and has allowed the illegal immigration into the country, investors have lost faith in the Indian economy.
On the other hand, the US Federal Reserve is also facing capital flow problems. During the past two months, the strength of the USDhas depreciated, while the strength of the Euro and the Yen has strengthened.
However, there is no sign of any significant capital flow either in Japan or in the United States. Other major economies may experience a slight decrease in capital inflows, but they will not be affected too severely.