Why a rising dollar risks unbalancing the world outside the US | Mohamed El-Erian

The sharp shift in exchange rates destabilises emerging economies and threatens trade talks

Argentinian president Mauricio Macri's government has asked the International Monetary Fund for a loan that it hopes can stem a peso rout that has driven up interest rates, will slow the economy, and threatens the reform programme. This reversal of fortune for the economy partly, though far from fully, reflects broader pressure created by the US dollar's recent appreciation - a process that is set to accelerate, because both monetary policy and growth differentials are now favouring the US.

For a while now, the US Federal Reserve has been well ahead of other systemically important central banks in normalising monetary policy - that is, raising interest rates, eliminating large-scale asset purchases, and starting the multi-year process of shrinking its balance sheet. This was amplified this year by another catalyst of the dollar's recent appreciation; a growing, and less favourable, divergence between economic data and expectations in the rest of the world.

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