The DeCarley Perspective...The dollar is quietly making a run; will it break things?

With politicians giving everyone so much to talk about, the strength of the US dollar has gone largely unnoticed.

There was a time when King Dollar lived up to its name; how the global currency market priced the dollar dictated how most other assets were valued. Things have changed a bit, mostly because government programs and Central Bank policies have distorted the currency markets. For example, aggressive money supply growth, artificially pinning interest rates, political sanctions levied on Russia, the seizure of oligarch assets forcing money into alternative stores of value such as gold and crypto, and pushes by BRICS to thwart the petrodollar system, have created a scenario in which the typical negative correlation between the dollar and global commodities and risk assets has strayed. Nevertheless, with a new Fed Chair who seems open to shrinking the balance sheet (removing liquidity from the system as a tightening measure rather than raising interest rates), we could see a more normal relationship among the dollar, stocks, and commodities. Simply, a higher dollar works against stock and commodity valuation.