From its June 1, 2021, low, the trade-weighted dollar (major currencies) has increased by 13.2% and against the emerging markets has risen by 4.9%, and much of this strength has come in only the last couple of months. Furthermore, the increase has been across just about all of the major currencies globally, bar four. In a world that is still very dollar dominated and given that dollar bull markets have historically tended to “break things,” such a large currency shift should be raising some eyebrows, and will not have gone unnoticed at the Fed this week. In this Economics Weekly we discuss the dollar’s recent behavior.
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Richard de Chazal, CFA, is a London-based macroeconomist covering the U.S. economy and financial markets.