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Return Of The Wrecking Ball: Dollar Soars
I wouldn't want to be Christine Lagarde or Andrew Bailey right now.
For months, FX folk wondered about the fate of the euro and the pound in the event the US economy continued to outperform, compelling the Fed to push out the first rate cut.
On Wednesday, a third consecutive US CPI overshoot served as the coup de grâce for whatever was left of June Fed cut pricing. Predictably, the common currency and sterling plunged.
If history's any guide, July 31 is more than three months away. A lot can
I have a somewhat different view. Growth is slower in developed markets outside the US. So their short term policy rates should be lowered and their currency should decline. This on balance will increase their growth and inflation relative to the US. Isn’t that supposed to happen? As long as it is reasonably anticipated, that would seem to be a good outcome. Am I missing something here?
Well, from a 30,000-foot perspective a strong dollar’s negative for global liquidity, but more narrowly, you’re implicitly (and probably accidentally) assuming that commodity prices, and particularly oil, don’t rise alongside dollar strength. If you’re a net energy importer with a weak currency in an environment where USD-denominated energy prices are rising, you’re looking at a terms of trade shock.
Explainer for the newbie? What’s the reason it’s a “wrecking ball”?
This posting is looking more & more relevant, isn’t it?
You never would have seen this headline 25 years ago!
• Japanese financial authorities should consider conducting coordinated currency intervention with other countries to support the yen, the head of the Tokyo Chamber of Commerce and Industry said.
Another example of your earlier reply to RIA.
Thankfully, according to Politico, Trump’s economic advisors are pondering a plan to weaken the dollar.