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Are the U.S. Dollar Outweighing Zinc Prices?

Are the U.S. Dollar Outweighing Zinc Prices?

Are the U.S. Dollar Outweighing Zinc Prices?

  • 25-Nov-2022 3:58 PM
  • Journalist: Henry Locke

After the two-year peaks and troughs of the pandemic, Markets may feel as though the COVID-19 theme has abated since 2022 is well over halfway through, but as always, new obstacles come and pave the way for additional possible volatility. As nations transition into the pandemic's aftermath, inflation is the "flavor of the year." Federal banks in the United States are tightening monetary policy to limit currency fluctuations and reduce inflation. For emerging market economies, this subject poses significant difficulties, as does the strengthening U.S. dollar.  

First off, because the U.S. dollar has the largest purchasing power and is used as the world's "invoicing" currency, a strong dollar frequently starts to slow down the expansion of global trade. This means that other currencies essentially decline when the USD appreciates, rendering the world poorer and less able to trade. It is perhaps even less advantageous for China due to its interconnected supply chains and high commodity demand. 

The concurrent rise in commodity prices, which is probably going to last for a while given the current economic climate, is the other challenge for a number of countries. The demand for the raw materials used to make products rises along with it, which drives up the price of commodities. Supply and demand dynamics are also very important for commodities, including Zinc. According to the research, prices for the majority of commodities have dropped from their previous peaks in U.S. dollars amid worries about an oncoming global recession.

This year, a strong U.S. currency has severely impacted the price of metals, especially Zinc, as the U.S. Federal Reserve aggressively raised interest rates to combat inflation. However, indications of poor demand and a recovery in the U.S. dollar trumped impending worries about supply bottlenecks, and Zinc closed down by -0.31% yesterday. According to data from the world's largest consumer, China, industrial production fell more than anticipated in the month of October 2022. Overall, market arrivals in Shanghai were consistent, but market transactions suffered under stable premiums, resulting in little change in the city's inventory.

By the second quarter of 2023, according to market analysts, the U.S. central bank will stop tightening its monetary policy, which will hurt the U.S. dollar and further help Zinc prices.

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