Dollar Soars As Recession Fears Finally Hit The Round-The-Clock Currency Market
Dollar Soars As Recession Fears Finally Hit The Round-The-Clock Currency Market
Published: July 5, 2022 By Vivien Lou Chen
U.S. and global recession fears have finally hit the round-the-clock currency market after more than a month of evaluation by traders — sending the dollar to its highest levels of almost 20 years as it jumped versus several rivals on mounting growth concerns.
The ICE U.S. Dollar Index DXY, 0.27% rose 1.5% to 106.69 on Tuesday, the highest level since 2002. The greenback’s pronounced strength indicates that a recession is turning into “more of a global phenomenon, reflecting less places to hide in the world,” said Tom Nakamura, a portfolio manager and currency strategy at AGF Investments in Toronto.
The euro EURUSD, -0.37%, Australian AUDUSD, -0.60% and Canadian dollars USDCAD, 0.27%, and Norwegian krone USDNOK, 0.69% underperformed by comparison, while emerging-market currencies like the South African rand USDZAR, 0.48%, Hungarian forint USDHUF, 0.56%, and Chilean peso USDCLP, also took a hit. Meanwhile, the Japanese yen USDJPY, 0.71% stabilized.
The currency market is only now coming around to the fears being reflected in the stock and bond markets, which is that central banks will likely be forced to drive rates substantially higher to combat inflation at the sacrifice of growth. Part of the reason for the delay is that markets were still “caught in carry mode,” or the ability to earn profits by borrowing in one currency to purchase another, Nakamura said via phone on Tuesday.
The “real blow” to all that “is the realization that Europe is going to face an energy crisis and not see any relief,” he said. “All the drivers of inflation aren’t going to go away any time soon, recession is now a global phenomenon, and we’re not seeing enough reasons why central banks would slow down in tightening.”
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