Nothing Will Stop the Dollar From Getting Stronger

All About the Benjamins

Global imbalances are growing ever more intense, and that’s visible most clearly in the incredible strength of the US dollar. It’s becoming quite extraordinary.

To see the strength of its upward trend, look at how the dollar index (comparing the US currency to a few of its biggest developed-market peers, led by the euro and Japanese yen) is performing compared to its own 200-day moving average, a widely accepted measure of the long-term trend. Only once before in this century has the dollar been so far ahead, and that was in 2015 as foreign exchange markets adjusted to the epic fall in the oil price that had started the previous year:

Everywhere the dollar’s power is apparent. Against the currencies of two major Asian exporters, Japan and South Korea, the dollar has now almost topped its extreme from 1998, set in the aftermath of the Asian financial crisis. Korea’s won is still far stronger than during its disastrous devaluation in 1997 — but has still sold off to its lowest level since the Global Financial Crisis of 2008:

Will this provoke a response from central banks? The yen is nearing the point where the Bank of Japan might decide to act. The following chart is from Mansoor Mohi-uddin, chief economist at the Bank of Singapore Ltd.: