Thursday 28 Mar 2024
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KUALA LUMPUR (Oct 7): The U.S. dollar strength has skyrocketed in 2022, posing problems for both advanced and emerging economies, yet there are no easy options for correcting its trajectory, according to S&P Global Ratings.

In a report titled "No Easy Way To Correct Outsized Dollar Strength” released on Friday (Oct 7), the rating agency said the U.S. dollar has risen 17% on a trade-weighted basis and by over 20% against some currencies.

It said this reflects relative--and expected--policy and market rate paths and heightened risk aversion.

S&P global chief economist Paul Gruenwald said the world appears to be entering the third dollar boom period in the past 50 years.

“There is no easy solution: passivity endangers inflation targets and credibility, rate rises risk lower output and employment, intervention is likely to burn through precious reserves," he said, noting that the 1980s solution--global coordination--requires a lot of political capital.

S&P said that for both advanced and emerging economies, the dollar's outsized strength triggers several problems, including higher imported inflation and the potential for higher rates, capital flow volatility, and higher debt service on U.S. dollar liabilities.

It said that resolution may ultimately depend not just on economics, but also politics.

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