The financial crisis and the dollar

In the face of the worst economic crisis since the Great Depression and unprecedented U.S. policy actions, the U.S. dollar is still up 14 percent, against a trade-weighted basket of major currencies, from its all-time lows last year. On top of that, as you can see in the chart below, the dollar remains in an uptrend ...

Source: Bloomberg

Meanwhile, currencies in the BRIC region have been decimated, with the exception of China — which has manipulated its currency in a virtual flat-line against the dollar since the crisis commenced.

Today, even after some recovery, the Russian ruble remains down 35 percent, the Brazilian real is down 27 percent and the Indian rupee is down 23 percent versus the dollar.

But most importantly, from peak to trough these currencies lost 58 percent, 69 percent and 33 percent respectively against the dollar at the height of the crisis. Take a look at the second chart below, and you'll realize how drastic this fall was.

Source: Bloomberg

This underscores the vulnerability of these less developed, less dynamic economies and emphasizes the fragile nature of their financial markets and currencies.