Influenced by geopolitics, the Fed’s interest rate hike and other factors, the exchange rate of major currencies in the world against the US dollar has generally plummeted.
According to statistics, since the beginning of this year, the exchange rate of 18 currencies against the US dollar has fallen by more than 10%, and five currencies have fallen by more than 20%. Four of the world’s five major settlement currencies fell against the US dollar, with the Japanese yen falling by more than 19%, and the renminbi falling by more than 8%.
The US dollar index once soared by nearly 15% in the year, rising to the highest level in nearly two decades. As the world’s main settlement currency, the appreciation of the United States dollar means the depreciation of other countries’ currencies, the decline of purchasing power, and will cause severe economic shocks. Among them, the exchange rate of Sri Lanka plummeted and the government was forced to declare bankruptcy. In addition, according to the data of IMF, world bank and other institutions, 15 countries, including Argentina, Türkiye and Lebanon, are facing debt crises.
The US dollar index rose to a nearly 20-year high
The path of the Federal Reserve’s radical interest rate hike seems to be a foregone conclusion. On the evening of September 8, Beijing time, US Federal Reserve Chairman Powell once again showed a hawkish attitude in his speech; He said: “the Federal Reserve needs to take action now to avoid the social cost of inflation. The longer inflation is higher than the target, the greater the risk. History warns us not to relax policy too early.”
Goldman Sachs raised the forecast of interest rate increase in September and November from 50bp and 25bp to 75bp and 50bp respectively, and believed that the interest rate level of the United States would approach 4% within this year.
In August, the US dollar index, which measures the US dollar against six major currencies, rose 2.7% month on month. As of September 10, the US dollar index closed at 109.02, still hovering at the highest point in nearly two decades.
In the whole year, the US dollar index once rose by nearly 15%. In the short term, the US dollar is still supported by many positive factors, including the strong US economic data and the need for the Federal Reserve to continue to raise interest rates; The US dollar index may still have momentum to break upward. Considering that the euro accounts for nearly 60% of the US dollar index, Europe’s economic growth is worrying, which may further suppress the performance of the euro, and the US dollar will also benefit.
The yen fell back to 25 years ago
GBP, euro and Korean won fell by more than 10%
The US dollar index continued to be strong, and the exchange rates of major global currencies against the US dollar generally fell sharply. At present, the five major settlement currencies in the world are US dollar, euro, Japanese yen, British pound and RMB. Among them, the yen fell the most against the US dollar, with a cumulative decline of more than 19% in the year. At present, the exchange rate of the US dollar against the Japanese yen is approaching the 145 region, a new high in 25 years.
None of the world’s major currencies are immune. In addition to the Japanese yen, the exchange rates of the two major settlement currencies of the world, the euro and the British pound, against the US dollar also fell across the board. Among them, the exchange rate of sterling against the US dollar fell by more than 14%, and the exchange rate of euro against the US dollar fell by more than 11%. At present, the euro has risen back to its flat level against the US dollar, but it is still at a new low in the past 20 years; The pound once fell to 1.1405 against the US dollar, a 37 year low since 1985.
The RMB was relatively strong, falling more than 8% against the US dollar. Globally, in addition to the decline in the exchange rate against the US dollar, the renminbi has also appreciated against the Japanese yen, the euro, the British pound and so on. Among them, the RMB appreciated by nearly 14% against the Japanese yen, more than 7% against the British pound, and nearly 4% against the euro.
In addition, the Korean won fell significantly, with a cumulative decline of nearly 14% against the US dollar during the year. The Indian Rupee was relatively resilient, with a cumulative decline of more than 6%.
The worst in this country
15 countries face debt crisis
From the perspective of the real economy, since the US dollar is the main settlement currency in the world, the devaluation of some countries’ local currencies will lead to a sharp rise in debt on the one hand, and their own purchasing power will also decline without sufficient foreign exchange reserves, leading to a continuous rise in the prices of energy and food that need to be imported. However, the wage growth of most consumers does not match the price growth. In this case, the consumption power will be severely weakened, which will lead to a comprehensive economic crisis and further lead to the depreciation of the exchange rate, thus falling into a vicious circle.
Sri Lanka became the first country to go bankrupt this year. At the beginning of July this year, Sri Lanka declared that “the country has gone bankrupt”, the president and prime minister resigned one after another, the country entered a state of emergency, foreign exchange dried up, materials were scarce, prices soared, and transportation was paralyzed… At present, Sri Lanka is in the most serious economic crisis since its independence in 1948. Foreign exchange has been exhausted, food, medicine, fuel and other necessities are in short supply, the country declared bankruptcy, and the people have protested constantly.
Analysts believe that the worsening of Sri Lanka’s economic situation in recent years is the result of the combined action of internal and external factors, and the last straw that crushed Sri Lanka was the sharp devaluation of its currency caused by the US Federal Reserve’s interest rate increase.
According to financial data, the US dollar has appreciated by more than 76% against the Sri Lankan rupee this year, once rising by more than 82%. Based on this calculation, Sri Lanka’s highest depreciation against the US dollar in the year was 45%.
The US dollar against Sri Lanka rupee has risen from 131.11 at the end of 2014 to 370.17, the highest this year, up 1.82 times. Based on this calculation, Sri Lanka’s highest depreciation against the US dollar in the past seven years has reached 65%.
Not only Sri Lanka, but Venezuela, Ghana, Argentina, Türkiye and other countries saw their exchange rates drop by more than 20% against the US dollar this year. Some countries may also fall into the US dollar debt trap.
According to the data of IMF, the world bank and other institutions, the following countries may face the risk of debt default through debt amount, foreign exchange reserves, inflation indicators, productivity costs, industrial structure and other indicators: Argentina, Türkiye, Lebanon, Nepal, Myanmar, Pakistan, Peru, Czech Republic, Poland, Malawi, Chile, Paraguay, Egypt, Mongolia, Laos and so on.