Strong Dollar Extends Lead Over World Currencies

Brian Turner
05 Jul, 2022
New York City

The U.S. dollar advanced against world currencies on rising fears of global slowdown and higher rate expectations in the U.S. 

The Federal Reserve Chairman Jerome Powell has reiterated the central bank's commitment in fighting sky high inflation and set expectations for more rate hikes in the year. 

Global recession worries were front and center in today's trading and the euro accelerated its decline in the year so far and plunged to a two decade low. 

The euro declined 1.3% to $1.029 and extended this year's loss to 9% after skyrocketing energy prices has driven inflation in the currency zone to a four-decade high.

In the year so far, the euro has fallen 13.8% and the British pound has declined 13.6% against the U.S. dollar.  

The U.S. dollar has been gaining ground against currencies around the world after the Federal Reserve lifted rates two times this year and set the expectations for more hikes during the year. 

Europe's proximity to the Ukraine war, four-decade high inflation, and interest rates lagging the U.S. has driven the euro to a two-decade low. 

The British pound fell 1.5% to $1.193 after two cabinet ministers resigned in protest of Prime Minister Boris Johnson's leadership. 

U.K. Prime Minister Boris Johnson suffered a serious blow after two top senior ministers offered their resignations.  

Finance Minister Rishi Sunak resigned after the latest scandal rocked Downing Street involving Tory deputy chief Chris Pincher. 

Four days ago Pincher resigned from the government over allegations that he groped two men at a private member's club. 

"The public rightly expect government to be conducted properly, competently and seriously.

 I recognise this may be my last ministerial job, but I believe these standards are worth fighting for and that is why I am resigning.," said Sunak in a letter published on his twitter account. 

"It has been an enormous privilege to serve in this role, but I regret that I can no longer continue in good conscience," Health Secretary of State & Social Care Sajid Javid tendered his resignation and said in a letter submitted to prime minister Johnson and published on twitter. 

The Japanese yen has been hovering near a two-decade low as the interest rate gap between Japan and the U.S. is expected to widen. 

In the year so far, the yen has declined 22.3%. 

The yen closed at 135.77 against the U.S. dollar and traders are looking for the currency to cross 140 yen in the early fall. 

The Australian dollar has fallen 9.5% and the Canadian dollar has declined 4.5% against one U.S. dollar in the year so far. 

Currencies of the emerging markets have also been on the slide with the Indian rupee trading at a record low of 79.36 after June trade deficit widened to a record high above $25 billion. 

The Indian rupee has declined 6.3% against the U.S. dollar. 

The Korean won has also depreciated as the country's foreign exchange reserve dipped below $440 billion and the currency fell 9.2% in the year so far. 

In the past, falling Korean won was a boon to exports but with the rising exports of higher value added manufactured goods, the weakness in the won has been more inflationary as the country imports more raw materials. 

Mexican peso has eased 0.4% and the Brazilian Real has dropped 4.5% in the year so far against the U.S. dollar.