German Chancellor Olaf Scholz during his closing news conference on the final day of the Group of Seven leaders summit at the Schloss Elmau luxury hotel in Elmau, Germany, on June 28 2022. Picture: BLOOMBERG/LIESA JOHANNSSEN-KOPPITZ
The US dollar’s index has only recorded year-on-year gains at the current 20% pace on four other occasions since its historic surge in 1985 prompted the then G5 powers to collectively intervene to cap the rampant greenback. G7 finance ministers’ latest virtual meeting this month focused squarely on plans for a price cap on Russian oil as another sanction on Moscow for its invasion of Ukraine and as a way to limit soaring energy costs and the inflation that unleashed.
But as Europe and Japan face blistering dollar energy bills this winter and Europe’s central banks at least chase an increasingly hawkish Federal Reserve in lifting interest rates, the soaring dollar is a dangerous irritant to their ability to navigate what now seems like a full-blown energy and economic war with Russia.
In what seems like a world turned upside down for traditional surplus economies of the ageing eurozone and Japan, both on Wednesday recorded exploding trade gaps during the summer as energy import prices and the dollar climbed in tandem. The problem for the G7 nations, whose finance ministers and central bankers meet again at the annual IMF meeting in Washington early next month, is that this is starting to have a spiralling effect.The European Central Bank has already started to publicly cite a weak euro-dollar as a problem in its fight against inflation and Bank of England chief Andrew Bailey continually points to the outsize strength of the dollar.