With the aggressive interest rate hikes by the Federal Reserve, the dollar continues to strengthen, and many countries face the crisis of intensified imported inflation and depreciation of their currencies.

Global recession signal reappears

The International Monetary Fund (IMF) pointed out in a new forecast report released recently: Global economic activity is experiencing a broad and more severe slowdown than expected, with negative spillovers such as the conflict between Russia and Ukraine and the resulting surge in energy prices. The effect will further impact the world economy.

Recently, many data from Europe and the United States show that the downward pressure on the European and American economies has further increased, and the global economic recession signal has reappeared.

The initial value of the US manufacturing PMI in October was 49.9, the lowest since June 2020, and the initial value of the Markit service PMI fell to 46.6, shrinking for four consecutive months.

The initial value of the euro zone's manufacturing PMI in October was 46.6, a 28-month low, and the initial value of the services PMI was 48.2, compared with the previous value of 48.9. European and American PMIs weakened simultaneously, and returned to below the line of prosperity and decline across the board.

Industry experts said that the sharply lower-than-expected manufacturing PMI in Europe and the United States reflects the growing pressure of economic recession, and Europe is facing greater pressure than the United States.

Many currencies continue to depreciate sharply

In March this year, the Federal Reserve started a new round of interest rate hike cycle to deal with high inflation. It has raised interest rates five times in a row, with a cumulative rate hike of 300 basis points. That has provided support for the dollar, which has risen sharply this year against a basket of currencies, hitting a 20-year high at one point.

Each round of the dollar strength cycle is a turbulent period in which the United States transfers domestic risks, and it is also a period of high risk in emerging economies.

Egyptian pound suffers biggest drop in 6 years as Egypt's central bank raises interest rates

Recently, the Central Bank of Egypt announced that it will raise the benchmark interest rate by 200 basis points. On the same day, the Egyptian pound fell by more than 16% against the US dollar, the largest decline since November 2016.

The central bank of Egypt said in its monetary policy report on the same day that the exchange rate of the Egyptian pound against other foreign currencies will reflect actual supply and demand within the framework of the flexible exchange rate system, and the central bank's priority is to achieve price stability.

Vietnam hikes interest rates twice in a row

A few days ago, the State Bank of Vietnam announced that the refinancing rate will rise from 5% to 6% from the next day, and the discount rate will rise from 3.5% to 4.5%. In addition, the upper limit of the VND deposit interest rate within 1-6 months was raised to 6%, and the interbank offered rate was raised to 7%.

This is Vietnam's second major rate hike of 100 basis points in a month. The dong has fallen 9 percent against the dollar so far this year as the Federal Reserve has repeatedly raised interest rates, leading to capital outflows from Vietnam.

South African rand continues to depreciate

According to data released by the South African Bureau of Statistics in September, South Africa's economy fell by 0.7% in the second quarter of this year, and major industries such as agriculture, mining, manufacturing, and construction all experienced negative growth. The rand has lost about 20 percent of its value against the dollar this year.

It is expected that the South African Central Bank may continue to raise interest rates in November. Analysts pointed out that the interest rate hike by the South African central bank will increase the pressure on consumers to repay loans, erode disposable income, restrain consumer spending and setback to economic growth.

Not only emerging economies, but the current round of the dollar's strong cycle also brings a lot of risks to developed economies, especially the euro area.

In July, the euro fell below parity against the dollar for the first time since December 2002. The euro has depreciated more than 10% against the dollar during the year. The pound has depreciated by more than 10% against the dollar this year, and the yen has depreciated by about 30% against the dollar this year.

Oppose dollar hegemony, many countries start the process of "de-dollarization"

As the "dollar hegemony" continues to harvest the world's wealth and threaten the economic security of more and more countries, many countries have become more and more aware of the need to get rid of the dollar's dominance, and have taken practical actions to start the process of "de-dollarization".

According to data released by the International Monetary Fund, in the past 20 years, the proportion of the US dollar in global foreign exchange reserves has shown a downward trend. , which indicates that central banks are gradually reducing their holdings of dollars.

In order to reduce the damage of Western sanctions to its own economy, Russia has taken the lead in announcing the promotion of "de-dollarization". The Russian central bank has continued to reduce the dollar's share of international reserves, and by January this year, the dollar's share had been reduced to 10.9%.

In addition, Russia has switched to rubles for gas supplies to "unfriendly" countries and regions since April.

In addition, the Iranian foreign exchange market launched the Iranian Rial/Russian Ruble currency trading on July 19. A few days ago, Iran's economy minister said that he has confirmed that the US dollar will no longer be used in Iran's economic and commercial trade with Russia.

The RBI said it has established an Indian rupee settlement mechanism for international trade with immediate effect. The mechanism includes settlement of invoices, payments, etc. for imported and exported goods in rupees.

The Bank of Israel began adding the Canadian dollar, Australian dollar, Japanese yen and Chinese yuan to its foreign exchange reserves this year, up from holding only the dollar, British pound and euro previously. At the same time, the country's central bank plans to reduce the dollar's share in its foreign exchange reserves to 61% from 66.5% to reduce its exposure to the greenback.

De-dollarization means that there are more options for trade between countries, and there is no need to worry about being "harvested" by the United States as before.