Rampant dollar threatens global economy
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Rampant dollar threatens global economy: top fund boss calls on US to deliberately weaken its currency
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According to one of the world’s leading fund managers, the United States should consider deliberately weakening its own currency to ease pressure on the global economy.
The pound is 17 percent lower than the dollar this year, the euro 14 percent lower and the yen 20 percent lower as the US Federal Reserve raises interest rates aggressively to tackle inflation.
Now, the president of the France-based Amundi Institute, Pascal Blanque, has said a short-term solution could involve an international deal to weaken the dollar, along the lines of the Plaza accord that achieved a similar goal 37 years ago.
Spending Power: The pound is down 17% against the dollar this year, the euro 14% lower and the yen 20% lower as the US Federal Reserve aggressively raises interest rates to tackle inflation
The super strong US currency is hurting other countries by driving up the cost of their dollar-priced imports like oil.
It also burdens the finances of companies and countries that borrow in dollars. The pound is the last time a steamroller has sprung up, while the Bank of Japan recently intervened to keep the currency level for the first time in 24 years.
Blanque said: “The amount of pain the prolonged rally is currently inflicting, even for other developed economies, is a stark reminder of its entrenched dominance in financial markets and international trade.”
The currency difference will be high on the agenda when finance ministers meet next week for the annual meeting of the International Monetary Fund in Washington. G20 leaders will meet in Bali in November.
Blanque said: “A short-term solution to address the tensions caused by the strength of the dollar could be an agreement to weaken the dollar, such as those that hit major economies at the Plaza Hotel.” [in New York] in 1985.”
The odds of the Fed agreeing to weaken the dollar seem slim at a time when it is fighting hard to bring down inflation, currently at 8.3 percent.
But Jordan Rochester, FX strategist at Nomura, suggested the Bank of England’s recent emergency intervention to buy billions of pounds worth of bonds – despite its battle against rising prices – could be the “canary in the coal mine” for other central banks.
He said: ‘Inflation is one thing, but clearly preventing the financial system from breaking is more important to the Bank of England for now.
“The question now is more for the Fed and the ECB – if and when something breaks – how soon will they intervene?”