Sterling is at its lowest level in 37 years and has already matched its slump three decades ago; The Japanese yen sank this Monday to its lowest level against the dollar since 1998, 24 years ago that levels like the current ones were not observed.
The Swiss franc, a traditional safe haven against the dollar when weakness in other currencies is palpable, has also fallen against the US currency, now sitting at its lowest point since 2015. The euro not only reached a one-to-one parity against the dollar, but has continued to sink and is currently trading slightly above 0.96.or 96 cents of a dollar for each European coin.
We are facing a true Super dollar, the safe haven currency in the world and, therefore, we are witnessing today a phenomenon not seen in decades and something unusual in this century: a global exchange rate collapse.
The causes of the super dollar
The extreme strength of the dollar is associated with the global economic context, there is no doubt. The US currency is the hedging currency par excellence, even in the event of a possible crisis in the issuing country, that is, the United States.
The world will almost inevitably enter a recession next year, if it is not that in some regions of the planet we are already facing this phenomenon and we won’t know until many years later, when the effects have worn off and the damage is done.
That almost inevitable recession naturally includes the United States, but a recession in that country is not the same as in other parts of the planet. Europe, for example, is experiencing its deepest and most risky crisis since the end of the Second World War, it is likely that a recessionary period will be profoundly damaging to the economy of this region; for this reason the governments of several countries try to save their economies, the United Kingdom is one of them.
But the efforts seem to be unfavorable so far; the pound sterling practically sank after Liz Truss, the new prime minister, launched her economic program that involves a very important tax reduction, both at personal and corporate level. At the same time, she proposes an extra historical spending of 130,000 million pounds per year to freeze the increase in electricity, but this amount will be financed in part with a higher fiscal deficit and a debt issue of an additional 75,000 million pounds. Of course the markets have reacted accordingly.
All of the above, along with what the economy has been dragging for the past two years, plus geopolitical conflicts, problems in supply chains and any other problem or conflict, strengthen the dollar.
But, is it positive or negative that the Super Dollar exists in the world today?
Dollar strength predicts crisis: Morgan Stanley
In other recent times, the strength of the US currency has translated into some kind of economic or financial crisis, Michael Wilson, head of US equity strategy at Morgan Stanley, told the Bloomberg agency.
According to the analyst, the current situation in the foreign exchange markets is very similar to that recorded in the 2008 financial crisis, the 2012 sovereign debt crisis and the ‘dotcom bubble’ in 2000.
Thus, the dollar index, which shows the weighted cross of the currency against six other currencies (euro, pound, yen, Swedish krona, Swiss franc and Canadian dollar), accumulates a return of 19 percent so far this yearwhile US stocks have fallen a weighted 23 percent.
The dollar is even strengthening at a time when most of the world’s main central banks, in addition to the Fed, are raising interest rates, it is an unusual strength, rarely seen.
But, in the analysis is the sentence, the strength of the dollar is bad news for the world, it could be the prelude not only to a recessionbut of a profound and long-lasting phenomenon, just as some analysts in the world have anticipated.
Latin America adrift; the Mexican peso will defend itself by rates
Latin America in general will be adrift in this crisis, there is not much that can be done in practically any field, that is why there is not much talk about this region in the midst of the global crisis, it does not make sense.
In the case of Mexico, weight could remain relatively stable, something that mistakenly, or perhaps intentionally, could be used as a sign of economic strength, nothing could be more wrong and far from reality. What happens is that the interest rate differential between Mexico and the United States is a real “bargain” for foreign investors, who will take advantage of this benefit offered by a market so close to the largest economy on the planet.
The crisis will hit Mexico in various ways, in terms of economic growth is where we will see the most effects, a new disaster seems inevitable and growth of more than 2 percent already looks practically impossible, while it is very feasible that we are facing the worst six-year term in this matter since the one registered in the period 1982-1988, with Miguel de la Madrid Hurtado.