Three reasons for the cedi’s recovery

After depreciating rapidly against the dollar from December 2016, the cedi has been quickly appreciating since the middle of March as show in the chart below.

USD/GHS. Source: Bloomberg

Here are three reasons, in no particular order, why that has happened.

  1.  Dovish hike from the US Federal Reserve. Although the FOMC of the US Federal Reserve raised its benchmark interest rate by 25 basis points, its forecast for further hikes was unchanged. This disappointed many people who were betting on the US Fed hiking rates as a much higher pace as US consumer inflation recovered.
  2.  Doubts about Trumpflation. One reason why the dollar spiked after Trump’s election was that his plans to cut taxes and spend heavy on infrastructure was going to increase US inflation and therefore make the Federal Reserve to increase interest rates at a higher pace. However, his current entanglement in repealing Obamacare is making investors feel that the tax cuts and infrastructure spending are still a while away.

These two points have resulted in the dollar index (a measure of the dollar’s value against a basket of currencies) to fall significantly as shown in the chart below.

DXY:CUR (Dollar Index). Source: Bloomberg

3. Auction of $120 million by Bank of Ghana. Many analysts have attributed the auction of $120 million by the BoG as solving the gap between demand and supply of dollars that had been affecting the currency’s value.

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Jerome Kuseh

Accountant | Economist-in-Training | Financial Analyst
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