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EM and the US dollar
Weekly investor research
29 January 2018
The decline in the Dollar versus EM currencies began two years ago with more room to run, in our view. Last week the Dollar’s decline received additional impetus from within the Trump Administration as US Treasury Secretary Mnuchin talked down the Greenback in a bid to head off protectionists within the Administration. Mnuchin’s verbal intervention to weaken the Dollar is a wake-up call for those, who are still not positioned for further Dollar weakness. The unwinding of QE policies in the coming years will continue to weigh on the Dollar, in our view, and EM stands to benefit as capital inflows to EM ease important financial constraints. This should unleash stronger domestic demand and eventually more rate hikes than the Fed will deliver.