Photo Credit: AlamyThe US dollar has surged to a four-year high against a basket of currencies and has punched through key technical resistance, marking a crucial turning point for the global financial system.
The so-called dollar index, watched closely by traders, has finally broken above its 30-year downtrend line as the US economy powers ahead and the Federal Reserve prepares to tighten monetary policy.
The index – a mix of six major currencies – hit 87.4 on Monday, rising above the key level of 87. This reflects the plunge in the Japanese yen since the Bank of Japan launched a fresh round of quantitative easing last week.
Data from the Chicago Mercantile Exchange show that speculative dollar bets on the derivatives markets have reached a record high, with the biggest positions against sterling, the New Zealand dollar, the Canadian dollar, the yen and the Swiss franc, in that order.
David Bloom, currency chief at HSBC, said a “seismic change” is under way and may lead to a 20pc surge in the dollar over a 12-month span. The mega-rally of 1980 to 1985 as the Volcker Fed tightened the screws saw a 90pc rise before the leading powers intervened at the Plaza Accord to cap the rise.
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