Soaring Dollar Index... Highest in 20 Years

Approaching 104 Against Six Currencies... New Global Economic Risk Signal

[Asia Economy Reporters Byunghee Park, Sojeong Seo] The dollar index, which reflects the relative value of the dollar against six major currencies including the Euro, Yen, and Pound, has surged to its highest level in 20 years. As the dollar continues to strengthen, global foreign exchange markets are also experiencing turbulence. This has raised concerns that it may signal new risks to the global economy.

According to major foreign media on the 28th (local time), the dollar index approached the 104 mark, recording its highest level since 2002. Since April, the dollar has shown an ultra-strong trend, rising on all but two of the 20 trading days. The dollar index's increase this month is approaching 5.5%.

The recent dollar strength is due to expectations that the U.S. Federal Reserve (Fed) will take a so-called ‘big step’ by raising the benchmark interest rate by 0.5 percentage points at once next month. Additionally, uncertainties caused by the prolonged Russian invasion of Ukraine and China’s COVID-19 lockdowns have driven global funds to flock to the dollar.

The problem is that the ultra-strong dollar could trigger capital outflows in markets worldwide, heightening inflation risks and throwing the global economy into turmoil. Bloomberg warned that the increased volatility in the foreign exchange market caused by the strong dollar could be a sign of new economic risks.

The won-dollar exchange rate also showed an unstable trend, surpassing 1,270 won per dollar for the first time in over two years the previous day. The Japanese yen against the dollar broke through 130 yen for the first time in 20 years. The yuan’s value continues to weaken as well.

After rising for six consecutive trading days, the won-dollar exchange rate took a breather on the 29th. At 10 a.m. in the Seoul foreign exchange market, the won-dollar rate was 1,270.8 won, down 1.7 won from the previous day’s closing price. It even dropped to the 1,260 won level that morning. Lee Eok-won, First Vice Minister of Strategy and Finance, stated that morning, "The government will closely monitor foreign exchange market trends and maintain the principle of implementing market stabilization measures if rapid market imbalances occur."

This content was produced with the assistance of AI translation services.