The Exchange Rate and Capital Flows——In Search of the Logic Behind Financial Market Risk Transmission
The US dollar has not only had an impact on the exchange rates of major currencies; its volatility has had a direct impact on global liquidity and asset allocations. With the policies of the Trump administration likely to boost US economic growth and add to inflationary expectations, the dollar is once again gaining ground. As a result, emerging markets can be expected to see renewed pressure. This paper analyzes the linkage of risk across a range of markets – from foreign exchange to stocks and bonds – and offers suggestions on possible strategies to counter the potential impact on the nation's currency.