LONDON: As the dust settles on a volatile week, many strategists now sense a green light for a long-brewing multi-year rise of the US dollar — with unnerving portents for emerging markets.
The US Federal Reserve’s now open debate about the beginning of the end of its massive money-printing programmes caused gyrations on stock and bond markets everywhere this week.
Even the prospect of the Fed reducing the amount of dollars it’s been flooding into the domestic and global economies via its bond-buying policy has seen several strategists crank up long-term dollar forecasts significantly.
The scenario raises concerns among many economists of what’s become known as “sudden stops” in western investment flows to emerging markets — the most spectacular being the 1997/98 currency crises across Asia, Russia and Latin America but yet again at the height of the credit crisis in late 2008/2009.
And that 1990’s crash coincided with a sustained dollar rally over many years and an investor shift back to the US.
The bullish case for the dollar has been building for months — US growth rates outstripping western peers; an entrenched housing recovery; cheaper domestic energy from shale and its likely shrinkage of US trade deficits; and even the relocation of some US industry back home have been oft-cited factors.
Reuters
