The currency wars are still rumbling on. Today, Thailand became at least the 21st country to cut interest rates so far this year, as everyone tries to make their currency cheaper than everyone else’s. The Federal Reserve still seems on track to raise rates in June, turbocharging the dollar. But there’s more than one way to win a battle. You can inflict increasing damage on your opponent, which is what most of the world is doing to the U.S. Or you can gain territory — which is what China is doing as its currency steals more and more of the global market.
Currency Wars
The U.S. dollar’s continuing ascent against almost every other currency in the world is capturing all of the attention in the foreign exchange markets. It’s on such a tear that even the stock market finally started paying attention yesterday, with the S&P 500 index having its worst day in two months. For U.S. companies, the greenback’s 12-year high against the euro and 20 percent gain against the currencies of its biggest trading partners in the past year threatens to trash exports and crimp overseas earnings. “A stronger dollar is undoubtedly a headwind for U.S. exports right now, and it’s a headwind for overall GDP growth,” Jason Furman, chairman of the White House Council of Economic Advisers, said yesterday.
While rumors of the dollar’s demise as the world’s reserve currency of choice have been greatly exaggerated, the U.S. has lost some ground. It still has a dominant 62 percent share of global currency reserves, according to the International Monetary Fund, though that’s slipped from more than 72 percent in 2001.
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