Currencies around the world are tumbling to multiyear lows, bruising investors’ portfolios and fanning the flames of a global trade war.
The Chinese yuan recently hit its lowest level in more than a decade against the dollar, the euro dropped to a fresh two-year low last week and the British pound is at depths it hasn’t consistently plumbed since the 1980s.
Some emerging-market currencies such as the Colombian peso have fallen to their lowest prices on record against the dollar, while Argentina has recently introduced capital controls after its peso plunged in August. Out of 41 currencies tracked by The Wall Street Journal, only nine are up against the dollar in 2019.
“People are becoming more concerned about currencies because currencies are becoming more dangerous,” said Kit Juckes, global strategist at Société Générale.
The declines highlight how fears of a global slowdown and a burgeoning trade dispute between the U.S. and China have converged to ripple through markets in recent months. Central banks began cutting interest rates earlier this year, ending a short-lived period when many were tightening monetary policy or signaling that higher borrowing costs were on the way.
As falling rates and slowing growth drove bond yields lower, investors headed to the U.S., where the economy is relatively strong and the payout on Treasurys stands far above that offered by many other government bonds. That shift has weighed on large parts of the foreign-exchange market while pushing the dollar up to historic highs against the currencies of many U.S. trading partners.
Mr. Juckes is advising clients to bet on the dollar and Japanese yen rising against a variety of emerging-market currencies, including the South African rand, Polish zloty and South Korean won.
Many countries are benefiting from cheaper currencies, which tend to make exporters’ products more competitive abroad and boost economic growth. That can leave their trading partners little choice but to allow their own currencies to weaken.