By Ambrose Evans-Pritchard at To the Point News
Thursday, 01 January 2015
America’s domestic economy can handle a surging dollar and a fresh cycle of rising interest rates. Large parts of the world cannot. That in a nutshell is the story of 2015.
Tightening by the US Federal Reserve will have turbo-charged effects on a global financial system addicted to zero rates and dollar liquidity.
Yields on 2-year US Treasuries have more than doubled from 0.31% to 0.74% since October, and this is the driver of currency markets.
Since the New Year ritual of predictions is a time to throw darts, here we go: the dollar will hit $1.08 against the euro before 2015 is out ($1.21 on 12/31), and 100 on the dollar index (already at 90 at year’s end).
Sterling (the British pound) will buckle to $1.30 ($1.57 on 12/31) as a hung Parliament prompts global funds to ask why they are lending so freely to a country with a current account deficit reaching 6% of GDP.
There will be a mouth-watering chance to invest in the assets of the BRICS and mini-BRICS at bargain prices, but first they must do penance for $5.7 trillion in dollar debt, and then do surgery on obsolete growth models. What are the odds for either?