Fuelled by the Federal Reserve’s most aggressive tightening cycle in more than a generation, the stronger greenback is pushing rival currencies lower, driving up the cost of imported goods, constricting financial conditions and feeding inflation in other economies.Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc.
While some of the world’s worst-performing currencies this year are from developing economies such as Sri Lanka, the outperformance of commodity-backed currencies such as Brazil’s real and Russia’s ruble have bolstered the EM grouping.Article content In the U.K. — which is already in a recession, according to a business lobby group — the Bank of England may tighten further on Sept. 15 as it confronts a loss of faith from investors that’s pushed the pound to the brink of its lowest since 1985.
For central banks such as the ECB, whose currency is the most-traded with the dollar, the current energy crisis has provided its policy makers with a particularly sharp reminder of the euro’s role as a channel for inflation — not least because of the greenback’s use in denominating global commodity prices.