Major Currency Crises in History
Currency crashes have devastated economies throughout history, from the 1997 Asian Financial Crisis (Thai baht, Korean won, Indonesian rupiah collapsed 50-80%), to the 2022 Japanese yen crisis (-32% vs USD), the 2015 Swiss franc shock (15% single-day move), and the 1992 ERM crisis when Soros "broke" the Bank of England. Emerging market currencies face particular vulnerability to capital flight, with Turkish lira, Argentine peso, and others experiencing hyperinflationary collapses.
US Dollar Index and Reserve Currency Dynamics
The DXY dollar index measures USD strength against major trading partners (EUR, JPY, GBP, CAD, SEK, CHF). Dollar strength typically correlates with risk-off sentiment and Fed tightening cycles, creating pressure on emerging markets with dollar-denominated debt. De-dollarization trends and BRICS currency discussions create long-term structural uncertainty, though the dollar remains dominant in global trade settlement and central bank reserves. Extreme DXY readings often precede reversals.
Carry Trade Risks and Forex Volatility
The yen carry trade (borrowing low-rate yen to invest in higher-yielding assets) creates systemic risk when unwound rapidly, as seen in the 2008 crisis and 2024 volatility spike. Similar dynamics exist with Swiss franc and other funding currencies. Forex markets trade $6.6 trillion daily, dwarfing equity markets, with leverage amplifying moves. Key indicators include central bank policy divergence, current account balances, interest rate differentials, and speculative positioning in COT reports.