Emerging Markets Hear the Mighty Dollar Roar
The key ingredient in prolonged contagion is continued dollar strength. And it’s here.
Bad news, for some.
Photographer: Andrew Harrer/Bloomberg
The first stage of this emerging market currency crisis was all about how the problems of individual nations were spilling over into contagion — but without dollar strength as a factor.
No longer. A nine-year high for U.S. average hourly earnings in Friday’s non-farm payroll report, combined with the strongest reading for the manufacturing PMI index since 2004, have pushed two-year Treasury yields to levels not seen 2007. Add to this that the Federal Reserve is in no position to back off its quarterly rate-hiking cycle anytime soon or halt its reversal of quantitative easing. As my colleague Shuli Ren has pointed out, the global financial system has to get used to having fewer dollars around.