Nations are being forced to go it alone in erecting defenses against the relentless strength of the almighty greenback, with no sign that governments are willing to act in concert.
Fueled by hawkish Federal Reserve policy, US economic strength and investors in search of a haven from market swoons, the greenback is surging relentlessly against counterparts big and small by the most in decades. On Friday, it pushed up to its highest level against the euro in 20 years, and was the strongest against the pound since 1985.
The action undertaken by Japan on Thursday was very much a solo affair, with an official from the US Treasury confirming that it did not participate and the European Central Bank saying it was not involved with currency market interventions. A spokesperson said the US Treasury understood the move but stopped short of endorsing it.
That broad-based dollar strength, combined with the market fallout from the latest Bank of Japan decision, evidently proved too much for the Japanese government. Officials in Tokyo had previously only talked about FX market concerns, but amped up their fight Thursday by acting directly to prop up the yen for the first time in decades. That’s even as its central bank bucked the global trend toward monetary policy tightening and held the line on keeping official borrowing costs low.
As long as the Fed is raising borrowing costs faster than most peers though, almost every other currency will remain under pressure.
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