War and recession risks propel the dollar to the top

Christine Lagarde, President of the European Central Bank, during a conference in Frankfurt (September 8, 2022). KAI PFAFFENBACH/REUTERS

DECRYPTION – The vigorous rise in US interest rates is siphoning off capital from around the world, attracted by the greenback, a safe haven. Geopolitical and economic uncertainties cause the euro, the pound or the yen to fall.

“The dollar is our currency, but that’s your problem.” The word of Richard Nixon’s Secretary of the Treasury, John Connally, has never rung so true for nearly every country on the planet. Faced with geopolitical and economic uncertainties, the greenback is playing its role as a safe haven more than ever, attracting capital flows from all over the world, which inflates its value, since, to buy assets in dollars, you must first buy dollars. Opposite, other currencies such as the euro, the pound sterling, the yen or the Chinese yuan suffer the mechanical consequences, accentuated by vulnerabilities specific to these economies.

Against a basket of six major currencies, the dollar has appreciated by more than 21% over the past year. The traumatic threshold of parity with the euro, reached this summer, is already only a memory. The euro touched Monday a new low for twenty years, just above 0.95 for 1 dollar. It has lost 17% against the greenback for a year

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