Interest rate hikes in the United States combined with the energy crisis have led to turmoil in global currency markets this year. The US dollar index, which tracks its value relative to a trade-weighted basket of six other currencies, has risen about 15 per cent to a 20-year high. But its performance against some other major currencies is especially notable. The US dollar is trading roughly at parity against the euro for the first time since 2002, running at a 24-year high against the Japanese yen and a 37-year peak against the British pound. It is also substantially stronger against most emerging market currencies except those of major energy or food exporters such as Russia and Brazil. The strength of the greenback is partly the result of US monetary tightening being far more aggressive than that in other major economies over the past six months. This has led to higher yields on US bonds, which have attracted capital inflows.

Higher energy prices, which have depressed the economies of major energy importers such as Europe, Japan and several emerging markets, have been another tailwind for the dollar, which may also have benefited from its "safe-haven" status at a time of geopolitical turmoil. Its strength, which many currency market analysts predict will continue given the US Federal Reserve's hawkish stance, is a net negative for the global economy. It forces other countries to raise interest rates to defend their currencies, even as their economies are weakening in the face of slowing global growth. It also creates difficulties for countries and companies to service their dollar-denominated debts - a problem that is especially acute for emerging economies.