The Hideous Strength of the U.S. Dollar
The U.S. currency’s rapid rise will make it harder for other countries to curb inflation.
The dollar is on a roll.
Photographer: Tatsunori Misawa
"It's our currency, but it's your problem," was the 1971 message from John Connally, Richard Nixon's treasury secretary, to U.S. trading partners dismayed by the dollar’s then weakness. What was true then remains true today, albeit in the opposite direction with the greenback having risen 6% in April and 13% in the past year to its strongest level for two decades against a basket of major currencies. The Federal Reserve needs to be mindful of the threat to global growth posed by the U.S. currency’s rapid ascent.
The greenback is the logical haven for investors seeking financial refuge from a confluence of global shocks that started with the pandemic and has been intensified by Russia's invasion of Ukraine, culminating in an energy and food price surge. King dollar rules supreme as the Fed maintains a policy of benign neglect in the currency market, having provided almost limitless access to dollar liquidity for central banks around the world in the past two years.