The exceptionalism of the U.S. economy is fading, spelling trouble for the dollar.
According to the WSJ Dollar Index, the greenback has declined by approximately 8.6% since reaching its peak in September. This decline marks the worst beginning to a year since 2018, the Wall Street Journal reported.
Investors are increasingly convinced that the U.S. currency has more room to weaken as the Federal Reserve approaches the conclusion of its most aggressive interest-rate increase program since the 1980s.
Furthermore, concerns about the banking system, the possibility of a U.S. debt default, and the prevailing belief among many economists that the U.S. is on the brink of a recession are all exerting downward pressure on the dollar.
The tightening measures implemented by the Federal Reserve sparked an unprecedented surge in the value of the dollar last year, pushing it to its highest levels in several decades against currencies like the euro and the yen.
However, the dollar’s strength began to wane in the autumn, and while it held steady at the start of the new year due to stubborn inflation, it has once again started to decline over the past two months.
This week, the Federal Reserve is expected to implement its final quarter-point rate increase before pausing its policy tightening.
This move will set the Fed apart from other major central banks, such as those in the eurozone and the U.K., which experienced delayed reopening from pandemic-related lockdowns compared to the U.S. and are currently grappling with more persistent inflation.
Written by staff