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Tags: Marcussen | rate | dollar | Fed

SocGen's Marcussen: Strong Dollar May Be More Dangerous Than Fed Rate Hikes

By    |   Tuesday, 30 September 2014 12:51 PM

The dollar has risen to a six-year high against the yen and a two-year peak against the euro. That could spell big trouble, says Michala Marcussen, global head of economics at Societe Generale.

"A strong dollar tantrum could be a more worrying scenario than a Fed tightening tantrum," she wrote in a commentary obtained by CNBC.

Some experts are worried that the onset of interest rate increases by the Federal Reserve will upset investors similarly to last year's "taper tantrum," when the central bank indicated it would soon begin curbing its bond purchases.

"Hope today is that a strong dollar will cap U.S. inflation, delay Fed tightening and boost exports to the U.S.," Marcussen noted.

But for that happen the dollar would have to rise to a level that would induce pain in the rest of the world, she wrote.

For instance, Marcussen added, the euro would need to fall to $1.10, and the U.S. dollar would need to fetch around 120 yen and 6.50 yuan in order for the Fed to delay hiking rates. The euro was around $1.2585 and the dollar was fetching 109.12 yen and 6.1386 yuan Monday afternoon.

"In such a scenario, [a strong] dollar would equate to further capital outflows, placing further pressure on already vulnerable economies," she said.

MarketWatch chief economist Irwin Kellner says the greenback's surge is a "mixed blessing."

On the plus side, it lowers the price of oil and other imports. For goods and services priced in foreign currencies, each dollar now buys a bigger slice. This limits inflation and increases consumers' buying power.

On the negative side, a rising dollar makes our exports more expensive and lowers the profit of U.S. companies selling overseas when their revenue is repatriated into dollars. In addition, the greenback's appreciation makes it more expensive for foreigners to invest in the United States.

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Finance
The dollar has risen to a six-year high against the yen and a two-year peak against the euro. That could spell big trouble, says Michala Marcussen, global head of economics at Societe Generale.
Marcussen, rate, dollar, Fed
309
2014-51-30
Tuesday, 30 September 2014 12:51 PM
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