The combination of ongoing risk-off impulses and eventual repricing of Fed tightening risks is likely to see the US dollar continue to recover after the recent correction, economists at BBH report.

Key Quotes:

“Yellen made it clear that U.S. policymakers are not concerned with the strong dollar right now. Specifically, she said that “A market-determined value of the dollar is in America’s interest.  The currency movements are a logical outcome of different policy stances.”  Since Treasury runs  U.S. FX policy, her statement suggests little concern about the surging greenback at this point.  As we all know, a stronger currency is part of the adjustment process when a central bank tightens and the dollar is no different.”  

“However, because it is the world’s reserve currency, this strength can have huge knock-on effects around the globe.  There have been stresses in several Frontier countries as well as some of the weaker Emerging Market countries, but this is simply beyond the purview of U.S. policymakers.  Bottom line:  we are nowhere near any type of Plaza-style Accord to arrest the dollar’s ascent.”