Dollar, Dollar, World on Fire
The Greenback has been on a tear since mid-July, up more than 7% against most major currencies. Not too long ago, most professionals were calling for an end to Dollar dominance as the global economy was normalising after all things Covid. So, what happened? For one, the inflation picture has changed. There is 'higher for longer' in the US and rate cut expectations have been pushed back by as much as a year. This has led a lot of money seeking yield back to the Dollar.
Meanwhile in Europe, things have fallen off a cliff. Much of that has to do with Germany, which has lost its competitiveness from higher energy costs. The ruling coalition is also doing everything they can to make a bad situation worse. Yes, they really did shut down nuclear reactors to burn coal in the interest of the environment. The UK isn't fairing any better and no matter what you think of Brexit, it certainly hasn’t helped. Not entirely surprising, both Sterling and the Euro are far from previous highs.
Over in Asia, Japan is busy printing money again to avert a collapse of the ticking debt time bomb, which now stands at 263% of GDP and the Yen has been tanking. Nobody seems to want the Chinese Yuan even with the BRICS countries desperate to trade in their own currency. Where do we go from here? Remember, everything is relative when it comes to exchange rates. Either the rest of the world gets better, or the US gets worse, but no economy is an island in the global flow of trade.