This year the dollar is up by 15% against the yen, 10% against the pound and 5% against the yuan. We explain why
good time to be an American tourist in Europe. Earlier this month the euro briefly dipped below parity with the dollar for the first time in two decades. But there is no need for Americans to confine their travels to Europe. Almost everywhere in the world is cheap for them these days. This year the dollar is up by 15% against the yen, 10% against the pound and 5% against the yuan. Why?
In early 2021 the dollar was near its lowest level in more than five years against a broad basket of currencies. It had been battered by the uncertainties of the pandemic. As life got back to normal, a rebound was on the cards. But few analysts expected such a sharp rise. The greenback is up by nearly 20% against that basket of currencies compared with June last year. It has climbed to heights last scaled in 2002.. Determined to rein in inflation, it has increased interest rates by 1.5 percentage points since March. Investors reckon it will raise rates by a further two points before the end of the year—the steepest pace of monetary tightening since the early 1980s.
This contrast in policies reflects profound differences in economic fundamentals. For years Japan’s problem has been deflation, with prices rising only slightly in recent months; its central bank is focused on spurring growth. In the euro zone inflation has run almost as high as in America. But its headache is more closely linked to the. Raising interest rates would not lower energy costs but would increase the chances of a recession.
All of this tightening by the Fed and other central banks is weighing on asset prices globally. Most stockmarkets are in rough shape, corporate bonds have been pummelled and the
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