Strong US dollar triggers currency turmoil, with 10 countries' currencies plunging sharply this year, some on the brink of collapse!

Since the start of this year, the EUR/USD exchange rate has dropped by a cumulative 15%. On August 22, the euro fell below parity against the dollar for the second time this year, hitting 0.9926, its lowest level since 2002. And the euro's depreciation appears to be just beginning.

Morgan Stanley expects the euro to fall to 0.97 against the dollar this quarter as the Fed turns more hawkish; Nomura International has a target of 0.975 for EUR/USD by the end of September, after which the market may look to 0.95 or lower as pressure on energy supplies raises the risk of power outages.

Economists expect eurozone CPI to reach as high as 9% in August, setting another record high and more than quadruple the 2% target, while the weaker euro exacerbates the inflation problem by driving up import costs.

The British pound suffered its worst month in August since the 2016 Brexit referendum, with the GBP/USD exchange rate falling over 4% in August. Year-to-date, the pound has dropped 11.8% against the US dollar, making it one of the worst-performing currencies in the G10.

Goldman Sachs believes the UK could slip into recession in the fourth quarter. Citi predicts UK inflation will exceed 18% in January 2023.

On September 1, in the Tokyo foreign exchange market, the Japanese yen exchange rate briefly fell above the 139.50 yen per US dollar level, hitting a 24-year low. In August alone, the yen depreciated by nearly 4%, and year-to-date, it has fallen by more than 18%!

However, the Bank of Japan has no plans to intervene in the yen's depreciation. BOJ Governor Haruhiko Kuroda stressed in a recent interview that monetary policy decisions are based on prices, not on the yen's exchange rate movements.

While a weaker yen does benefit exports, it also drives up the cost of imported raw materials. A survey by Teikoku Databank shows that about 60% of surveyed companies reported a negative impact on their performance due to the yen's rapid depreciation. Among over 10,000 companies surveyed, 61% said the weaker yen had a "negative impact." Teikoku Databank analyzed that the expected boost to exports from yen depreciation has not clearly materialized, while it has instead pushed up import prices.

The KRW/USD exchange rate has fallen to its lowest level since 2009. Looking at the year-to-date trend, the South Korean won has cumulatively depreciated by 11% against the US dollar.

Bank of Korea Governor Rhee Chang-yong stated that if prices in South Korea continue to spiral out of control, the central bank may not rule out following the Federal Reserve with aggressive interest rate hikes. The Bank of Korea has already raised its forecast for this year's Consumer Price Index (CPI) growth to 5.2%. In July, South Korea's CPI rose 6.3% year-on-year, up from 6.0% in June, marking the highest level since the financial crisis in November 1998.

Since the start of this year, as of mid-August, the Turkish lira has depreciated by approximately 26%.

Turkey currently ranks as the world’s “inflation king,” with the July inflation rate surging 79.6% year-on-year, a 24-year high. In Istanbul, the country’s most populous city, prices in July jumped 99% compared to the same period last year.

A retailer in Turkey said that in the past, people would buy food in bulk without hesitation, and the bill would be less than 100 lira. Now, they can only afford a few kilograms at most, and must budget carefully for non-essentials like desserts, snacks, and soft drinks. Turkish citizens frankly admit that basic necessities have become luxury items, and “the situation is dire.”

In July, Argentina's inflation rate hit 71%, a near 30-year high, and economists forecast the annual inflation rate could surge to 90% by year-end! Meanwhile, the parallel (black market) exchange rate of the Argentine peso against the US dollar breached the psychological threshold of 300 pesos per dollar on July 19, and plunged to a historic low of 338 pesos per dollar on July 22. In the official market, the peso has also depreciated by 37% against the dollar over the past year.

Argentina is an export-oriented economy that relies heavily on imports for consumer goods. Soaring international energy and raw material prices have already driven up imported inflation, and the sharp currency depreciation is further intensifying these imported inflationary pressures. To prevent hyperinflation, Argentina's central bank has been selling US dollars daily in an effort to stem the peso's decline.

Furthermore, on June 27, the Central Bank of Argentina issued Circular A7532, extending import foreign exchange control measures to cover services and the financing regime for non-automatic license products, for a three-month period through September 30 this year. Recently, Argentine customs has also begun cracking down on irregularities in import and export trade, primarily targeting the misdeclaration of goods values, such as under-invoicing exports and over-invoicing imports. The first round of enforcement involved 13,640 transactions and 722 companies, with a total FOB value of approximately US$1.25 billion.

The Russia-Ukraine conflict has hit Egyptians where it hurts most — their food supply. As the world’s largest wheat importer, Egypt has been severely impacted by soaring global wheat prices, with some food costs rising by 66%, pushing inflation to 15%.

Currently, the Egyptian pound is trading at 19.1 to 1 US dollar, the second-lowest level on record, surpassed only by the sharp devaluation in the winter of 2016.

Some foreign trade professionals have already reported that goods exported to Egypt are stranded at ports because buyers are unable to open letters of credit.

Already battered by the escalating Russia-Ukraine conflict, major Eastern European currencies have been dealt another blow by the eurozone’s economic downturn and the depreciation of the euro.

This year, the Hungarian forint has performed even worse than the Turkish lira, depreciating by more than 26% against the US dollar. Hungarian media have run headlines such as “Forint becomes the world’s weakest currency,” “Forint takes a heavy hit,” and “Forint in free fall against the dollar and euro.”

Since late February this year, the Polish zloty has depreciated by 12% against the US dollar. Poland’s inflation rate has now surged to 15.7%.

Poland, which has consistently taken a hard line against Russia, is now feeling the backlash of sanctions. Poland is a major coal-fired power producer in Europe and the largest coal producer in the EU, with an annual output exceeding 50 million tonnes. However, it still needs to import around 12 million tonnes of coal each year. Due to the Polish government’s decision to impose sanctions on Russian coal, millions of Polish households will face a coal shortage this winter.

The Ukrainian Hryvnia has already depreciated by nearly one-third and may continue to weaken further.

To cover the shortfall, the National Bank of Ukraine has been running the printing presses at full speed. In June alone, the central bank printed as much as USD 3.6 billion. Ukraine's inflation rate currently stands at 20% and is expected to reach 30% by the end of the year.

The London-based Centre for Economic Policy Research (CEPR) issued a report urging Ukraine to reduce its reliance on money printing and seigniorage, warning that if the current monetary policy continues, it could trigger hyperinflation, a currency crisis, or even a banking crisis.