April is said to be the cruellest month and it’s certainly been so for anyone on the wrong side of the dollar trade.
A 5% rise in the dollar index, driven by safe-haven flows and an uber-hawkish Fed, has triggered big falls in the euro and yen, as well as emerging market currencies, led by the yuan.
The moves are tightening global financial conditions, which can cause economic growth to slow. Companies in Japan, Germany and elsewhere face higher import costs for dollar-priced materials and components.
Some past Fed tightening cycles weakened the U.S. currency once they kicked off. This time though, comparisons are being drawn with 1994 when 300 bps of rate rises lifted the dollar index 4.6% (following a 10.5% jump in 1993). Those moves were blamed for subsequent waves of emerging market crises.