Globally, most markets are dominated by the exceptional strength in the U.S. dollar. The dollar rally is putting pressure on all other currencies worldwide, as well as on commodities and gold (although to a lesser extent).
The dollar is now at the highest level in 11 years against all major currencies. Look at some impressive figures related to the ongoing dollar rally:
– in the last 12 months, the dollar went +21% higher against the Norwegian and Swedish currencies, it appreciated +17% against the euro and +13.5% against the yen
– last week, the dollar index went 2.6% higher while it stands 11% higher year-to-date
– last week in Latin America, the Brazilian real fell 5.7%, the Colombian peso fell 3.2% and the Chilean peso fell 1.8%
– last week in Europe, the euro fell 3.2%, the Norwegian krone dropped by 3.7%, the Danish krone fell 3.4%, the Swedish krona fell 2.9%, the Swiss franc fell 2.0%, the British pound fell 2.0%, the Polish zloty was down 3.6%, the Hungarian forint fell 3.2%, the Czech koruna fell 3.1% and the Iceland krona declined by 2.4%
– elsewhere in the world, the same depreciation took place last week, including a drop of 1.2% in the Canadian dollar, the Russian rouble declined 2.9%, the Singapore dollar fell 1.1%, the Australian dollar fell 1.0%, the Taiwanese dollar fell 0.6%, the Japanese yen fell 0.5% and the New Zealand dollar was down 0.4%.
Now that is impressive!
The dollar’s surge is being driven by expectations that Fed chair Janet Yellen will indicate following this week’s policy meeting that rates will rise.
The monstrous rally in the dollar has resulted in a chain reaction by central banks around the world:
– the People’s Bank of China lowered interest rates for a second time in three months
– central banks of Turkey, Korea, Thailand, Russia, Poland, India and Serbia have cut their rates
– central banks of Denmark, Canada, Switzerland, Peru and India are embarking on monetary easing polices, and are weakening their currencies
– Canada cut interest rates for the first time since 2010
– the Danish central bank cut its main interest rate to -0.35%
Remember, all this is happening to fight the deflationary forces of the rising U.S. dollar. The million dollar question at this point is how the U.S. Fed will handle this trend. The FOMC board is meeting on Tuesday March 17th and Wednesday March 18th. One of the topics on the agenda is a decision on interest rates. The whole world is depending on the U.S. Fed at this point, and the effects of their decisions on the dollar, and hence markets and monetary policies globally. Will the Fed let this episode of the currency wars run, or will their decisions result in a trend change? We will soon know.
Meantime, savers are losing their money on savings accounts and on negative interest rates in government bonds. That is exactly the reason why holders of precious metals are investing in safety.