U.S. monetary policy is zinging while the rest of the world's currencies are sagging. The world should brace for a prolonged dollar surge, more strains for developing economies and volatility in global markets.
The US interest rates were expected to increase within 14 months. This was after the Federal Reserve signaled central banks prompting investors to bet on the raise of interest rates. No similar move is seen in the Euro zone, Japan or Britain before 2016 at the earliest. This would be the first major divergence in rate expectation for five years.
It is projected that there would be lesser Fed money printing prospects and the European Central Bank promised this week to keep low interest rates. This pushed the gap between US and German 10 year government bond yields to its widest since 2006.
A stronger greenback would cause a depressive impact on dollar priced commodities. This could also increase dollar borrowing costs for companies and developing countries. It would also stem the flow of US investment overseas.
Join the Conversation