The U.S. dollar saw its biggest monthly decline against other major currencies this year in August, falling more than 2%, helping global economies that were pressured by a stronger dollar. This downtrend is linked to the expectation that the US Federal Reserve will cut interest rates in response to a weaker economy.
Zurich Insurance Group’s chief market strategist (OTC:ZFSVF) said: “The dollar has been under pressure and will remain under pressure for the remainder of this year.”
In Japan, the yen has seen a remarkable recovery, mitigating the need for expected government intervention. The yen, which had reached a 38-year low against the dollar in July, has rebounded significantly, with the dollar now trading at 146 yen, down more than 15 yen or about 10% from mid-July. Among the factors contributing to the yen’s rebound were the Bank of Japan’s rate hikes, expected rate cuts by the Federal Reserve, and a reversal in swap deals. MUFG’s Head of Global Market Research for EMEA commented that unlike previous corrections, no recovery in US interest rates is expected due to a fundamental market shift.
China’s currency, the yuan, rose to its highest level since June 2023, raising concerns about potential disruptions from further appreciation of the Chinese currency. The yuan’s appreciation is mainly due to a weaker dollar rather than China’s domestic economic performance. ING’s chief economist for Greater China expects the dollar to reach 7 yuan by the end of the year, down about 1 percent from current levels.
Emerging market currencies, particularly in Asia, have benefited from a weaker dollar, with the Philippine peso and Indonesian rupiah posting their best monthly gains in years. However, this trend did not extend to Latin America, where currencies faced losses due to internal challenges and unstable commodity prices. However, a weaker dollar provides some emerging markets with an opportunity to cut interest rates and focus on domestic growth.
Read also:August Dollar Weakens Helps Global Economies
The British pound and the euro have become the best performing major currencies this year. The pound is now trading above $1.30, up more than 25% since record lows, while the euro has risen above $1.10. This strength is supported by market expectations of lower interest rate cuts by the European Central Bank and the Bank of England than by the Federal Reserve.
Sweden’s currency, the crown, rose 4% in August, becoming the best performing major currency. Its appreciation against the euro is particularly beneficial, allowing Sweden to consider cutting interest rates. While analysts suggest that it may be difficult for the Swedish crown to rise further, the Norwegian crown is expected to perform well, especially if global growth remains stable while U.S. growth slows and interest rates fall. NatWest analysts believe that in such an environment, growth-sensitive currencies such as the Norwegian crown tend to excel.
Reuters contributed to this article.
This article was translated with the help of an artificial intelligence program after an editor’s review. For more details please refer to Banha Terms and Conditions
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