The US dollar dominates the foreign exchange market. Demand for safe assets such as the Swiss franc and the Japanese yen, which is often accompanied by concerns about an economic slowdown and rising uncertainty, has continued to rise, but only the dollar continues to rise. Foreign investors are buying U.S. dollars with the money they sold stocks and bonds amid an unsettling flow.
Foreign dollar holdings, record high The Wall Street Journal (WSJ) reported on the 21st (local time) that the amount of foreign dollar cash holdings is approaching an all-time high. Amid soaring inflation (inflation), central banks around the world are raising interest rates, and fears of a global economic downturn are mounting. Deutsche Bank foreign exchange strategist George Sarabellos pointed out in his analysis note that “the dollar is one of the rare financial assets that provides a return as a hedge against stagflation around the world.” Stagflation is a phenomenon in which both inflation and economic slowdown occur.
An unstable market as central banks around the world fail to control inflation, rapid rate hikes are driving the global economy into recession, while concerns over stagflation that inflation will not be able to catch are driving the financial markets to hell. All financial products, including stocks, bonds, cryptocurrencies, and commodities, are falling. Although it started a strong rebound today, the S&P 500 index, a market condition indicator for the New York Stock Exchange, has fallen more than 20% from its previous high on the 13th, entering an official bear market. Meanwhile, the dollar is attracting investors from all over the world by offering the only stable value.
Swiss Franc, Endo The WSJ Dollar Index, which measures the value of the US dollar against 16 currencies, has risen 3% this month. The dollar has risen about 12% over the past year, although the upward trend slowed last week when the Federal Reserve raised interest rates by 0.75 percentage points. The Swiss franc and Japanese yen, which served as safety valves along with the dollar when the market was unstable, are also failing this time. As the Bank of Japan (BOJ) continued its zero-interest rate policy, the yen lost its attractiveness as a store of value, and the Swiss franc has not received much attention.
There is no alternative Fund managers are acknowledging that the current high dollar value is a bubble, but they continue to buy the dollar because there is no other alternative. As the central bank’s interest rate hikes and the flow of risky assets continue to flow, they believe that the dollar, the key currency, will have no choice but to maintain its highest level in decades.
There is a high pessimism that the US economy will almost certainly fall into recession within next year at the latest, but there is no alternative. “In theory, we can expect the dollar to fall in the long run due to high inflation in real terms,” said Hugo Ranzioni, head of global foreign exchange management at Neuberger Berman. Rancioni predicted that the dollar would depreciate by then when concerns about a global economic slowdown subside and geopolitical tensions such as the Ukraine
