The strength of the US dollar can indeed have significant implications for the global economy and markets. It is not just the Yen or Ringgit. Currencies around the world are down against the greenback this year, and that trend has accelerated in recent weeks.
Well, my clients are well aware of my position on the US dollar. In the days to come, we could witness the actions central banks take if jawboning fail to halt the selling of their currencies. This article from Bloomberg will surely catch the attention of those investors whose portfolios are calculated in dollars.
Here is a section:
The resurgent dollar cut a swath through global emerging-market currencies Tuesday, weakening many through closely watched levels that forced some officials to step in to stem the losses.
China’s move to weaken its daily reference rate for the yuan added to the selling pressure, with the Indonesian rupiah, Indian rupee and the South Korean won among the hardest hit. But the dollar impact was broader, with a global gauge of emerging-market currencies falling to fresh lows for the year. Stocks also extended their losses, with a benchmark of emerging-market equities erasing their gains for the year.
The dollar’s strength forced Bank Indonesia to step in to support the rupiah after the currency weakened past 16,000 per dollar for the first time in four years, as onshore markets reopen after a holiday that was more than a week long. South Korea’s foreign-exchange authorities warned of the risk of excessive one-sided currency moves on the economy after the won dropped to the closely watched level of 1,400 per dollar for the first time since late 2022.
“Pressure on EM currencies could last until we get clarity on the Fed’s plans,” said Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management. “While the medium-term positive trend remains intact, the market will go through some turmoil before regaining a better footing.”
Attention will turn to Europe where currencies like South African rand, Polish zloty, Israeli shekel are facing pressure. Geopolitical tensions and stronger-than-expected US retail sales data suggesting the Federal Reserve will delay interest-rate cuts have helped the US currency extend gains into a fifth day.
Iran’s attack on Israel at the weekend added to the impetus for haven buying as conflict between the two countries entered a perilous new phase.