"It's our currency, but it’s your problem,” John Connally, Richard Nixon’s treasury secretary, told the world in 1971. Four decades later, the dollar’s weakness threatens to incite a full-blown currency war that could distract policy makers from their key task of mending the post-pandemic global economy.
The U.S. currency has been on a downward trend for several months. The Federal Reserve’s recent shift to an even more dovish stance — saying that it will allow inflation and the labor market to run hotter for longer than previously — looks set to exacerbate the dollar’s decline.
"Had the changes to monetary policy goals and strategy we made in the new statement been in place several years ago, it is likely that accommodation would have been withdrawn later, and the gains would have been greater,” Fed Gov. Lael Brainard said in a speech last week. In other words, the U.S. central bank will delay tapping the interest-rate brake for longer in future.
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