How the Dollar Impacts the Global Economy and Financial System
• The US Dollar is the world's largest currency and accounts for the vast majority of global transactions
• A strong or weak Dollar carries direct implications for commodity prices, inflation and risk trends
• Whether the Fed hikes in 2015 or holds off can significantly change the current of the world economy
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Central bankers, economists and politicians the world over have warned that the global economy and financial system are at at risk from US policy and the Dollar. Does the US currency really have that level of influence? It does. As the world's largest economy and with the most prolific currency, globalization has deepened the lines of influence for the United States. As a primary pricing instrument for commodities, we find not only an inverse correlation between USD and key natural resources' prices, but also a driver for global inflation. Financing and sentiment may find greater distortion outside of the US than in it due to the Fed's accommodative monetary stance. And, the impending risk of a Fed rate hike can roil global conditions just as certainly as they alter the course of US markets. We reverse the typical analysis channel by looking at the Dollar's influence on fundamentals in today's Strategy Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.