Emerging market currencies have made significant gains against the US dollar over the past two months. The dollar index, which measures the dollar’s strength against a basket of currencies, fell by 4.7% in April alone. Some notable emerging market currencies that have gained against the dollar include the euro, which has appreciated by 0.7 percent, the pound sterling, the Australian dollar, the Chinese yuan, and many others.
These gains can be attributed to various factors, including:
• US-China trade tensions: The ongoing trade standoff has led to a decline in investor confidence in the US dollar.
• Federal Reserve monetary policy: The Fed’s interest rate decisions have influenced global capital flows, with a weaker dollar making emerging market assets more attractive.
• Global economic growth: Strong growth in emerging markets has attracted foreign investment, boosting their currencies.
In Ghana, the cedi has appreciated significantly against the US dollar during April. The Ghanaian cedi gained about 6.82% against the dollar, with the exchange rate decreasing from 15.49510 GHS per USD on April 2 to 14.43811 GHS per USD by the end of the month.
The factors responsible include:
- The tariff war, which has weakened the US economy.
- Constrained fiscal policy, with many jobs executed in 2024 still not paid for.
- The central bank injecting about $1 billion into the economy, from sources including the IMF.
It will be exciting and beneficial for the business community—both local and international—to see the cedi in good shape, offering predictability and enabling proper planning. However, much more needs to be done in the areas of revenue mobilization and the strict enforcement of certain policies by the Central Bank.
