Dollar scales record levels at 3-year peak; global rampage spurs FX interventions, speculation of big G7 move

The dollar’s brutal ascent—up 6.5 percent this month against a basket of peers—has sent almost every other currency reeling. “If there is one currency causing problems right now and aggravating the sell-off in global asset markets, it is the US dollar,” ING Bank told clients. “The US has brought in almost all its instruments, the one that hasn’t been done is intervention—the stronger the dollar gets the more likely the US government will consider intervening,” said Thomas Flury, head of FX strategies at UBS Global Wealth Management’s Chief Investment Office. “Typical during past crises, FX interventions helped calm not only FX markets but also equities and brought credit spreads down and that is something they will be keen to do.” Outsize dollar Dollar strength will dismay not only those in the Trump administration, but others around the world because when the dollar rises, it tends to ‘tighten’ conditions through channels such as higher import prices or by forcing interest rate hikes to shield currencies. “Dollar strength is unwelcome for the US as it tightens financial conditions but for the rest of the world it tightens financial conditions even more because many countries are highly dollarised or they have dollar debt,” said Claire Dissaux, head of global economics and strategy at Millennium Global Investments.