Blog Surf
The US dollar is on a tear, strengthening around 11 per cent since the start of the year and – for the first time in two decades - reaching parity with the Euro. Indeed, an overwhelming number of major currencies have depreciated against the dollar, with big implications for the developing world. Given the slew of headlines, I wanted to outline some of the key impacts that a strong dollar has on emerging markets (EMs). The dollar is strengthening primarily because there is strong demand for dollars. The economic outlook for most economies points towards a major slowdown.
Meanwhile, the war in Ukraine has created massive geopolitical risk and volatility in markets.
On top of that, historic inflation has prompted the US Federal Reserve to aggressively hike rates.
These factors, among others, are prompting a flight to safety, wherein investors are exiting positions in Europe, Emerging Markets, and elsewhere and looking for safe harbor in US-denominated assets - which, obviously, require dollars to buy. - blog.wb.org/blogs
A version of this article appears in the print on August 9, 2022 of The Himalayan Times.
