• A Federal Reserve gauge of the inflation-adjusted dollar exchange rate against major U.S. trading partners shows the greenback has so far gained 17 percent from an all-time low in July 2011.
  • This has led to many analysts and alike remembering the ascents in the early 1980s and again at the turn of the millennium. 
  • In the previous two dollar-rising cycles, the currency gained 53 percent from 1978 to 1985, and then 34 percent in the seven years through 2002.
  • Q. What happened on both those occasions?
  • A. The widening of trade and current account deficits.
  • What might be the outcome this time? Same again I believe . . .
  • Higher borrowing costs in the U.S. are now lowering commodity prices, reducing exports from countries such as Brazil, South Africa, and Russia. It’s also luring capital away from developing nations, slowing their credit expansion and dragging down economic growth.

A strong dollar and the prospect for higher borrowing costs in the U.S. are now lowering commodity prices and reducing exports from emerging markets

Source : Bloomberg, Macro Intelligence 2 Partners

Advertisements