US dollar’s hegemony in currency markets gaining strength

ISTANBUL 

The hegemony of the US dollar is strengthening on currency markets as the global economy nears the end of high liquidity, meant to fight the financial fallout from the coronavirus pandemic. 

After central banks opened the liquidity spigots during the pandemic, they U-turned towards monetary tightening amid rising inflationary pressures, especially since the Russia-Ukraine war began. This has caused high demand for the US dollar worldwide.

Demand for the US dollar index has risen globally, paving the way for a selloff in a number of other currencies.

Although the dollar index plummeted 6.7% in 2020, diving below the critical level of 90, it has been on the rise since the second half of last year due to supply chain constraints.

Central banks have begun normalizing their monetary policies due to high inflationary pressures since Feb. 24, when Russia began its war on Ukraine.

The US Federal Reserve has also signaled more aggressive interest rate hikes, which made the dollar index climb to 103.90 in April – its highest level in 20 years.  

* Writing by Ovunc Kutlu in Ankara

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