The Dollar Is a Source of Global Instability

The dollar constitutes about 60% of global reserves, 80% of global payments and almost 100% of global oil transactions. So the dollar’s strength or weakness can have an enormous impact on global markets. Using the Fed’s broad real trade-weighted dollar index TWEXMPA (my favorite foreign exchange metric, much better than DXY), the dollar hit an all-time high in March 1985 (128.4) and hit an all-time low in July 2011 (80.3). Right now, the index is 95.2, below the middle of the 35-year range. But what matters most to trading partners and international debtors is not the level but the trend. The dollar is up 12.5% in the past four years on the Fed’s index, and that’s bad news for emerging-markets (EM) debtors who borrowed in dollars and now have to dig into dwindling foreign exchange reserves to pay back debts that are much more onerous because of the dollar’s strength. And EM lending has been proceeding at a record pace. Actually, the Fed’s broad index under...

from GoldBroker.com https://www.goldbroker.com/news/dollar-source-global-instability-1349