The US Federal Reserve is laser focused on cutting inflation in the US, and that’s causing the world a whole lot of pain. Federal Reserve Chairman Jay Powell announced another interest rate hike of 75 bps on September 21, taking the US federal funds rate to a target range of 3-3.25%. 

The aggressive pace of the Fed’s rate hikes in the past six months has strengthened the US dollar against world currencies, making commodities traded in dollars, like oil, expensive to purchase. It has also caused rapid outflows of foreign investor money from emerging markets.

In Asia, the Chinese yuan and Japanese yen have been the worst hit. The Chinese yuan has fallen 13.5% in six months against the dollar. The Japanese yen has fallen 16.8% over the same time period. The fall in the currencies of Asia’s largest economies might force foreign investors to sour on investments in  the region as a whole. 

The Indian rupee fell 7.7% in six months against the dollar and hit  a new all-time low of Rs 81.6 per dollar on Monday. FIIs have pulled out money from Indian equities everyday since September 21.

As currencies tanked against the dollar, Central Banks moved to limit the declines. China has disbursed $39.6 billion in the forex market to limit the fall of the yuan. The Reserve Bank of India (RBI) has spent $75.1 billion since the start of 2022 in order to support the rupee against the dollar.

Things are not that different in Europe, where the Euro fell 14.8% while the British pound dropped 22.4% in six months against the dollar. The recent tax cuts by the UK government have contributed to this fall, as investors fear that the move will lead to runaway inflation.