The surging dollar has prompted some analysts and investors to forecast a new period of “reverse currency wars” as many central banks abandon a longstanding preference for weaker exchange rates.
The new dynamic marks a departure from the period of low inflation that followed the 2007-09 global financial crisis, when historically low interest rates and large-scale asset purchases — which were partly aimed at boosting growth through a weaker currency — sparked accusations that some economic policymakers were pursuing a currency war.
But in the global burst of price growth that has followed the pandemic, stoked even further by Russia’s invasion of Ukraine, the focus for central banks has shifted from encouraging growth to bringing down inflation.