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Stronger USD Dampens Inflation Pressures (And Slows Growth)

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Following on from fresh 20-year highs for the DXY dollar index earlier today, an excerpt from our report on the US dollar (see here): financial and economic conditions are both directly and indirectly impacted by a stronger dollar - a few examples:

  • Transmitting to global activity: Higher USD debt servicing costs in local FX; central banks respond to weaker FX by tightening
  • Dampening inflation pressures: The implied drop in import prices would also be helpful from the Fed’s perspective. (The Chinese yuan’s renewed weakness vs USD marked the top in inflation breakevens – see chart). We may have seen some evidence of this from slowing goods price categories in April's CPI report.
  • Slowing US export growth
  • Weakens US corporate profitability: “Growth” stocks get nearly 50% of revenue from overseas; S&P overall about 40%; small-cap value 15-20%. So the stocks that have been driving the bull run for the last few years are already suffering most from tighter conditions.

Source: BBG, MNI

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Following on from fresh 20-year highs for the DXY dollar index earlier today, an excerpt from our report on the US dollar (see here): financial and economic conditions are both directly and indirectly impacted by a stronger dollar - a few examples:

  • Transmitting to global activity: Higher USD debt servicing costs in local FX; central banks respond to weaker FX by tightening
  • Dampening inflation pressures: The implied drop in import prices would also be helpful from the Fed’s perspective. (The Chinese yuan’s renewed weakness vs USD marked the top in inflation breakevens – see chart). We may have seen some evidence of this from slowing goods price categories in April's CPI report.
  • Slowing US export growth
  • Weakens US corporate profitability: “Growth” stocks get nearly 50% of revenue from overseas; S&P overall about 40%; small-cap value 15-20%. So the stocks that have been driving the bull run for the last few years are already suffering most from tighter conditions.

Source: BBG, MNI