chair of the Official Monetary and Financial Institutions Forum, a think tank. “It’s a very, very strong dollar,” said Mark Sobel, a former Treasury official who now serves as the U.S.

As money has poured in, the value of the dollar has increased. As a result, rates are now markedly higher in the United States than they are in many other large economies, luring investors attracted by the higher returns on even relatively conservative investments such as Treasury bonds. The factors roiling the global economy partly explain why the dollar has suddenly become so much stronger.Īs central bankers around the world try to tame inflation by raising interest rates, the Federal Reserve is moving more quickly and more aggressively than most. But pick just about any currency - the Colombian peso or the Indian rupee, the Polish zloty or the South African rand - and it has probably lost value against the dollar, especially over the past six months or so. In the past week, the yen sank to a 24-year low against the dollar and the euro fell to parity, a one-for-one exchange rate, with the dollar for the first time since 2002. Source: Refinitiv The index comprises the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc weighted against the U.S. By that measure, the dollar is at a 20-year high, after gaining more than 10 percent this year, a huge move for an index that typically shifts by tiny fractions each day. The main way to gauge the dollar’s strength is by indexing it against a basket of currencies of major trading partners like Japan and the eurozone. “That’s a pretty tough mix,” said Kamakshya Trivedi, the co-head of a market research group at Goldman Sachs.

The dollar has gained in recent months as inflation has soared, interest rates have increased and the worries over growth have worsened.

It is one side of about 90 percent of all foreign exchange transactions, accounting for $6 trillion in activity every day before the pandemic, from tourists using their credit cards to companies making major international investments.Īs the world’s most important currency, the dollar often rises in times of turmoil, in part because investors consider it to be relatively safe and stable. The dollar lubricates the global economy.

Currency outlook 2021