It’s evidence of how far alarm about the decline of the dollar’s global role has spread that even Liz Truss, whose salad days as UK prime minister lasted less than seven weeks, cites it as one of her major fears. Then again, given Truss’s record on understanding financial markets and delivering a stable currency, you might also say that’s strong evidence that the concerns are misplaced.
Indeed, although there seems to be a fresh round of concern that upward pressure on prices, geopolitical risk and the US’s foreign entanglements will drag the currency down and reduce its global influence, so far there isn’t much evidence of it. The dollar strengthened last week as forecasts of Federal Reserve interest rate cuts were scaled back in light of unexpectedly high inflation. It’s a currency’s normal reaction to interest rate differentials. If there were fears US inflation was getting out of control and shaking confidence in monetary policy we might expect to see it weakening, not strengthening, and the prospects for American growth underperforming rather than outperforming other economies.
