The U.S. Dollar Surrendered Its Status as the World’s Premier Safe Haven In Q4
The U.S. Dollar Surrendered Its Status as the World’s Premier Safe Haven In Q4. Here’s How.
Dec. 30, 2022 By Joseph Adinolfi Market Watch
The U.S. dollar’s status as one of the few dependable safe havens for investors during this year’s market mayhem started to erode during the fourth quarter, even as the greenback posted its biggest yearly advance since 2015.
For much of the year, the dollar’s strength was blamed for helping to weigh on stocks, as a more expensive currency ate into export revenues and corporate profits while higher Treasury yields made bonds increasingly attractive relative to stocks.
But something changed for the dollar around the beginning of the fourth quarter. Central banks in Europe and — more recently — Japan applied a more aggressive monetary policy, signaling that they intend to close the gap with higher U.S. yields created by the Federal Reserve. This helped to drive their currencies higher.
At the same time, investors in the U.S. were betting that the Fed’s campaign of interest rate rises was drawing nearer to its end.
This resulted in the euro EURUSD, +0.37% rising roughly 8.8% against the dollar, its biggest quarterly gain since 2010, according to Dow Jones Market Data.
Meanwhile, the ICE U.S. Dollar Index DXY, -0.33%, a gauge of the dollar’s strength against a basket of six major currencies, is on track to fall 7.7%, its biggest quarterly drop since the second half of 2010, Dow Jones Market Data show. The yen USDJPY, -1.44% and British pound GBPUSD, +0.36% also strengthened, along with many emerging markets currencies, and in the span of a single quarter, the dollar’s year-to-date advance was cut almost in half.
Despite this, the dollar index still rose 7.9% this year, its biggest calendar-year gain since 2015, when it rose 9.3% amid the eurozone debt crisis that stoked fears that the Greeks might abandon the euro.
Just before the start of the fourth quarter, the dollar index reached 114.11, its highest settlement level of the year, on Sept. 27, according to FactSet data. At that point, the popular gauge of the dollar’s value was up roughly 19% for the year.
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