Three-month U.S. Dollar London interbank offered rate (LIBOR) that serves as the basis for trillions of dollars in loans and floating-rate securities globally hit a 10-year high of 2.45%, the highest level since November 2008.
The Euro Area, China, Canada, Mexico and Japan together account for over 70% of U.S. trade. Have these countries (including the Euro Area group of countries) manipulated their currencies to boost exports? In this century (2000 onwards) the Chinese Yuan, the Canadian Dollar and the Euro have appreciated against the dollar. The Japanese Yen has been largely unchanged against the U.S. dollar since the start of this century and only the Mexican Peso has weakened against the dollar.
What a difference six months makes, here’s the performance of the US dollar against each currency as of the 5th of September 2018,
Notes: 1. We have excluded the performance of Angola, Sudan, Argentina, Turkey and Venezuela on the map because they are major outliers. They are included in the data set below. 2. Currency price data updated 05-September-2018
The U.S. economy is doing great and is set to contribute 25% of global Gross Domestic Product (GDP) this year, its highest share since 2007. The rise of the U.S. dollar and increases in interest rates are squeezing emerging economics at an unprecedent pace. But it isn’t just emerging economies that are feeling the squeeze, Europe has its problems with Italian debt (and yields), the Australian dollar which has long been considered a growth asset has been falling this year and elsewhere trade worries and rising oil prices are having a big impact on other nations. Even German factory orders are the weakest in years as the U.S. is truly taking back economic leadership.
We wrote earlier this year on the downsides of synchronised global growth. We wrote that when global synchronised growth begins to end the U.S. dollar strengthens, investors run away from emerging markets, interest rates continue to rise to tame inflation and bad debt becomes an issue. All of this is happening now, first the US Dollar, here is the 1-year performance of the U.S. Dollar mapped,