As the Federal Reserve puts upward pressure on interest rates, the dollar is strengthening compared to other world currencies in areas where governments cannot, or will not, relieve savers from the punishing effects of ultra-low interest rates.
Despite the Fed’s efforts, so far inflation is still raging. The dollar isn’t necessarily getting more valuable, it’s just the least-bad currency available at the moment. Caitlin Ostroff and Tom Fairless report on the dollar in The Wall Street Journal:
A flight to the U.S. dollar pushed currencies around the world to their lowest levels in years, as economic prospects in Europe and elsewhere darkened under the cloud of soaring energy prices.
The euro neared a 20-year low against the dollar after natural-gas and electricity prices surged on the continent. Currency traders fear Europe’s economy might buckle if Russia completely shuts off natural-gas supplies that are used for heating homes, keeping lights on and running factories. Energy prices were further boosted by labor strikes at Western Europe’s largest gas fields in Norway.
The bloc’s common currency fell as much as 1.5% against the U.S. dollar to trade at $1.0265, its lowest level since late December 2002, according to FactSet. Its decline—as well as the dollar’s strength—this year has renewed the view that the euro could reach parity with the greenback.
The dollar also rose against the Swiss franc and Japanese yen, two stalwart currencies that normally attract investors at times of uncertainty. The yen slipped to nearly 136 to the dollar, close to its weakest since 1998.
In a sign of the broadness of the dollar’s rally, the ICE U.S. Dollar Index, which measures the dollar against a basket of currencies, hit its strongest level in nearly two decades, bringing its year-to-date gain to nearly 11%. The move in the dollar index, if sustained through the end of the year, would be its biggest since 2014, according to FactSet.
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