FT opinion article: “The dollar’s rapid rise increases risks for global economy - Dangers are particularly acute for developing countries already facing number of crises”. Our currency, but your problem #dollar #Fed #markets #bonds #equities ft.com/content/099cf5…
1/According to the author the recent rise in the dollar has attracted less attention than it should. In theory it should help exports by weaker countries and ease US inflation.
2/This year the dollar is strongly up due to expectations of more aggressive Fed monetary policy, economic outperformance and safe haven status.
3/The risk to the US trade position is being ignored. But there are significant risks for developing countries as regards energy, food and debt servicing. It puts pressure on countries with already stretched finances due to Covid.
4/This could lead to damaged global growth, and a destabilised developing world adding volatility to financial markets. And the Fed could find it difficult to reverse policy.
5/IMHO the current dollar strength is a real problem. It is pushing local currency commodity prices higher at a time of slowing global growth, and growth concerns are likely to add to dollar strength. People are literally going to go hungry.
6/And commodity prices (in dollars) are unlikely to slow due to geopolitics (i.e. Russia/Ukraine) and ESG (limited investment in fossil fuel infrastructure that will take years to fix, even if there was a will).
7/If the Fed ends up engineering a global recession, the dollar will probably go up making everything worse. It is difficult to make a better case for the dollar in the short-term and a worse one in the long-term.
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