US Dollar vs Emerging Market Currencies
Post-election, the US dollar has been rising against several emerging-market currencies. As stated in the Wall Street Journal:
"The Mexican peso has fallen 11% against the dollar to record lows since the election, while the Brazilian real has tumbled 6.3%."
"The U.S. currency moved closer to parity with the euro after rising for the 10th straight day, the dollar’s longest winning streak against the euro since the European currency’s inception in 1999. The dollar also moved higher against the yen, which fell to its weakest levels against the U.S. currency since May 30."
The obvious advantage seems to be for the U.S., as foreign goods can be purchased for cheaper. But there are some disadvantages, which was mentioned by Jonathan Lewis, CIO at Fiera Capital Inc:
“The strong dollar is destabilizing for markets, for foreign assets, for emerging-market nations that pay back their debt in dollars. That’s pretty significant.”
Central banks in various countries have intervened due to this effect on emerging market currencies. Indonesia's central bank has sold dollars and bought government bonds in order to slowdown its currency decline. Mexico's central bank has raised interest rates in response to the weakened peso and there are several other instances of such interventions by central banks.
What your thoughts on the rising dollar?
