The trade-weighted US dollar seems set to end the week a bit higher, reversing some of its recent decline. But the dollar strength has mostly been against G10 currencies; despite the fall in US equities this week, the “riskier” emerging market (EM) currencies have generally risen. We doubt this pattern will last, as we expect tighter financial conditions from rising US Treasury yields to put renewed pressure on most EM currencies. Indeed, we expect the Fed to signal a rate hike in March and an accelerated pace of quantitative tightening when it announces policy next Wednesday, which could prove the next catalyst for a stronger greenback.
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