Our base case is that the recent bout of weakness in the US dollar will reverse. If it remains at its current level, the direct macro impact is likely to be small for most countries, especially advanced economies. But benefits will be felt in some EMs with high inflation and large external financing needs such as Turkey and parts of Latin America. Further dollar weakness would increase the likelihood of the ECB and other central banks cutting interest rates as well as EM financial markets repeating last year’s outperformance.
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