Some previous surges were followed by sharp declines, but world instability means the euro and yen could fall
The US dollar has been on a tear this summer. The Japanese yen and the euro have fallen to their lowest levels against the greenback in two decades; the euro, long worth more than one dollar, is now hovering close to parity. The US Federal Reserve’s broad trade-weighted dollar index has almost reattained the peak it reached in March 2020 amid the panic triggered by the start of the Covid-19 pandemic. In fact, if one adjusts for inflation in the US and its trading partners, it is already higher.
This is happening despite the US recording its highest annual inflation rate in four decades and its worst trade balance since the global financial crisis. What is going on, and is the dollar set to plummet?