The energy crisis and the war in Ukraine are impacting currency markets. While the US dollar is enjoying investor interest and benefiting from its reputation as a safe haven, major Asian currencies are weakening under the weight of circumstances.
The US dollar has strengthened against a basket of global currencies since March 2020. It gained 0.7 per cent in a single day and reached its highest level in two years. The dollar index climbed to 101.86.
Why is USD strenghtening?
According to analysts, the dollar is attracting investor interest for two reasons. On the one hand, the U.S. economy is doing better than the economies of most major countries in the world, and on the other hand, investors are speculating on how the Federal Reserve will decide on interest rates next week. While a 0.5 percentage point increase was widely expected not long ago, a 0.75 percentage point hike is now not ruled out.
Asian currencies
The Chinese yuan has lost nearly three percent against the dollar over the past five days, and the Japanese yen has weakened nearly five percent against the dollar since the beginning of April. If the Federal Reserve raises rates more than expected, the dollar is very likely to extend its gains.
