![]() That is because economic spillover effects from the war in Ukraine significantly worsened Europe’s economic outlook, with substantial increases in energy prices plunging the region into a trade deficit, thereby reducing the value of the euro and sterling. ![]() Moreover, the relative strength of the US economy globally attracted investment that contributed to the dollar surge. A major contribution to the rise of the US dollar in 2022 was a growing interest rate differential between the Fed and other major central banks globally In turn, this interest rate differential increased yields on US debt which attracted investment and thereby strengthened the dollar. In the fight against soaring inflation, the Fed started to increase its interest rate earlier, leading to consistently tighter monetary policy. Simultaneous events inside and outside the US spark dollar surge in 2022Ĭentral to the rise of the US dollar in 2022 was a growing interest rate differential between the federal funds rate, set by the US Federal Reserve (the Fed) and other major central banks globally. ![]() This global influence became particularly apparent in 2022 after a rare combination of distinct factors triggered a rapid surge of the US dollar. This global status of the dollar is primarily driven by the strength of the US economy and the outsized influence of its financial markets, with changes in its value therefore having implications for the global economy. The US dollar is widely used outside the US in international trade and finance and also serves as the dominant reserve currency for central banks around the world. Being the currency of the largest economy in the world, fluctuations in the US dollar exchange rate have important implications for the global economy, businesses and consumers, given its impacts on investment, debt servicing and inflation. As of 8 February 2023, the greenback declined again markedly but still remains about 8% higher compared to a year earlier, based on the US Dollar Index. The US dollar reached a 2-decade high against other major currencies in September 2022, following months of rapid appreciation.
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