A change in the greenback’s historical relationship with oil is increasingly rippling through economies and markets
The writer is a former chief investment strategist at Bridgewater Associates As economies evolve, relationships between asset prices can change, often in such a quiet, evolutionary way that investors get caught off guard. That is what has happened with oil prices and the dollar. A change in the historical relationship is increasingly rippling through global economies and markets and putting emerging-market oil importers in a particularly unenviable spot.
In the dollar’s case, recent strength has also reflected the contribution from oil prices to fears that US inflation would fall more slowly than previously expected, in turn adding pressure on the Federal Reserve to keep interest rates higher for longer. This trifecta — higher energy prices, higher US interest rates and a stronger dollar — is the last thing many countries want to see right now.
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