It’s Every Nation for Itself as Dollar Batters Global Currencies

Nations are being forced to go it alone in erecting defenses against the relentless strength of the almighty greenback, with no sign that governments are willing to act in concert.

Fueled by hawkish Federal Reserve policy, US economic strength and investors in search of a haven from market swoons, the greenback is surging relentlessly against counterparts big and small by the most in decades. On Friday, it pushed up to its highest level against the euro in 20 years, and was the strongest against the pound since 1985.

Japan has become the latest major country to step directly into the foreign-exchange fray, joining nations from India to Chile that have been tapping their dollar stockpiles in the fight against the mighty greenback.

While the problems in currency markets right now are in many ways reminiscent of the 1980s, the solutions are unlikely to be. Back then, the world’s economic superpowers agreed to tackle in unison the problem of persistent dollar strength, coming to an agreement in 1985 with the Plaza Accord. This time around, there’s little sign such a pact will be forthcoming as national economic interests diverge and the multi-decade shift toward greater global integration is thrown into reverse.

Coordination along the lines of a fresh Plaza Accord would need to include the US administration and there is “close to 0% probability on the Treasury intervening right now to weaken the dollar,” said Viraj Patel, a strategist at Vanda Research. “There’s tons of literature that shows ‘leaning against the wind’ in FX is a futile exercise when monetary policy is having the opposite effect.”