In the dollar we trust

DESPITE rampant inflation and slowing growth, the US dollar keeps going from strength to strength. Since May last year, the greenback has risen by 28 per cent against the yen and 20 per cent against the pound. It has appreciated 19 per cent against the euro, reaching parity for the first time since 2002.

On a weighted-average basis, the dollar is the highest it has been in 20 years. In fact, when judged against a broad set of foreign currencies, it is even higher now than it was in 2002. You would have to go back to 1983 to 1985 to find a time when the dollar was clearly stronger.

In a sense, the dollar’s recent rally may seem puzzling. After all, surging inflation and the ongoing economic slowdown should have hurt demand for dollars. But the greenback’s current strength can be explained by the relative resiliency of the US economy and the Federal Reserve’s ongoing commitment to raising interest rates.