This year, the US dollar has crushed numerous rivals, including the Japanese yen, euro, and Chinese yuan, and foreign exchange market analysts predict that the greenback's dominance will not wane in the near term.
The Federal Reserve is the primary driver of the dollar's rise, with policymakers targeting high inflation with big interest rate hikes in order to restrict economic growth.
The Fed's fifth rate hike this year is likely on Wednesday, raising the Fed funds rate from 2.25% to 2.5%.
While the Fed is in the focus, investors' perceptions of an economy's competitiveness, according to Marc Chandler, managing director of Bannockburn Global Forex, can serve as a medium-term driver for currencies.
Shifts in the global trade climate and growth concerns are contributing to the dollar's rivals' weakening. The US Dollar Index has reached 20-year highs and is up 14% this year.
In 2022, the yen has dropped 24% against the US dollar. For the first time in 24 years, the dollar recently surpassed 145 yen.
With the Bank of Japan's commitment to asset buying to preserve its 10-year yield at 0.25%, the yen trade has been "fascinating," according to Edward Moya, senior market analyst at Oanda.
Since 2016, the BOJ has been manipulating its yield curve in order to boost inflation.
The US 10-year Treasury yield has risen near to 3.5% as a result of the Fed's aggressive rate campaign, making the bonds more appealing compared to Japan's and weighing on the yen's value.
"The Japanese economy has struggled to generate inflation... And now we may be witnessing inflation alongside wage growth, which could force the Bank of Japan to shift policy sometime next year "Moya stated.
The Bank of Japan's next policy statement is coming on Thursday.
Despite global central banks (excluding China's) raising interest rates, Bank of America sees "no movement" in yield curve control.
According to BofA, the dollar will advance to 150 yen due to "rate differentials, worries of debasement, and capital flight."
Meanwhile, the world's third-largest economy is suffering from a negative terms of trade shock, according to Chandler.
"Japan imports the majority of its food and energy. Food and energy prices have risen much faster than the prices of [its] produced goods.
As a result, Japan, like Europe, has shifted from trade surpluses to trade deficits "He added another reason weighing on the yen.
The eurozone's common currency has fallen 13% against the dollar this year, falling below parity for the first time since 2002, and could go even worse.
Barclays forecasts $0.9800 in both the fourth and first quarters of 2022 and 2023. On Friday, it was trading at $0.9950.
Russia's reduction in gas deliveries into Europe has caused gas and energy prices to skyrocket, forcing the European Union to scurry to stockpile gas before winter arrives.
"The eurozone economy is so weak, and rising costs are driving an economic downturn. People are having difficulty making ends meet "Insider spoke with Fawad Razaqzada, a market expert at Forex.com.
"It has increased energy input expenses for enterprises. Despite the fact that the [European Central Bank] is raising interest rates in order to control prices, sentiment toward the euro is relatively low." In August, Eurozone inflation reached a new high of 9.1%.
According to Moya, Europe's energy dilemma may not be fully priced into the euro until the winter season, when it will be obvious if the region has enough energy supply or not.
"Much of this will be determined by the weather. Europe appears weak... and this will be difficult for the euro over the rest of the year."
Europe appears weak... and this will be difficult for the euro over the rest of the year."
The yuan fell to a two-year low versus the dollar this week, with the greenback crossing above 7 yuan per dollar. This year, China's currency has lost roughly 10% of its value.
In recent weeks, the People's Bank of China has sought to provide upward support, including by fixing the currency's daily rate beyond market expectations as it prepares for the next Fed rate hike.
August retail sales and industrial production both exceeded estimates on Friday, but the yuan sank.
"Make no mistake, the Chinese economy is ailing," Razaqzada added. "Its zero-COVID policy saps the economy's momentum in terms of growth.
It's tough to see a way out for yuan as long as the policy remains in place." He believes the dollar would soon reach 7.20 per yuan.
Sales and prices in China's property industry, a major development engine for the world's second-largest economy, fell as well, according to data released on Friday.
"Its cash register has broken down," Chandler remarked of the real estate market before the release of data.
"What is the future developmental model, and how can you minimize the damage?" China must answer, he says.