The dollar's strength is being felt in the fuel and food shortages in Sri Lanka, in Europe’s record inflation and in Japan’s exploding trade deficit
The currency’s rise has compounded pain in smaller nations by making crucial food and fuel imports priced in the U.S. dollar more expensive. Many haveto help finance imports and stabilize their currencies. And while commodity prices have retreated from their highs in recent months, that has done little to ease pressure on developing countries.
It isn’t just developing economies struggling to cope with weaker currencies. In Europe, the euro’s weakness is amplifying a historic increase in inflation brought on by the war in Ukraine and aAt the European Central Bank’s meeting on Sept. 8, President Christine Lagarde expressed concerns about the euro’s 12% slide this year, saying it has “added to the buildup of inflationary pressures.” The ECB is signaling a more aggressive policy stance, with investors now projecting rates to rise to 2.5%.
“The strong dollar has created a headwind for about every major asset class,” said Russ Koesterich, co-head of Global Asset Allocation atInvestors and economists are raising the prospect of global action to help weaken the dollar—though they caution the chance of such a step remains small. In 1985, the U.S., France, West Germany, the U.K. and Japan launched a joint effort, known as the Plaza Accord, to drive down the dollar’s value amid concerns it was weighing on the global economy.
The dollar is getting stronger. While that may sound like something to be happy about, a run-up in the value of the dollar can ripple through the economy in unexpected ways. WSJ’s Julia-Ambra Verlaine explains. Illustration: Jordan Kranse
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