Column-Yearend stress catalyzed by a restive dollar: Mike Dolan By

By Mike Dolan

LONDON (Reuters) – As the good and great of the investment world try to figure out 2022, they may have taken their eyes off the rest of this year.

All of a sudden, the coming yearend — often an illiquid and erratic period for global markets once the U.S. Thanksgiving holiday is over — looks incredibly stressful.

Much of that is seeded by the long-brewing narrative around post-pandemic inflation, a more urgent “normalisation” of central bank settings and a wide divergence in approaches from region to region – not least due to different responses either side of the Atlantic to more waves of COVID-19.

Clarity over Jerome Powell’s renomination as Federal Reserve chief this week might have been a moment that calmed things down. But all it seems to have done is release more anxiety about recent Fed signals about hastening a taper of its bond buying and possibly bringing forward a first interest rate rise.

So much so that in the space of just three weeks money markets have rushed to price three full quarter-point Fed hikes in 2022 compared to the two seen at the start of the month. And they have also pulled in Fed “lift-off” day to May from July.

While all that may just be second-guessing next year, the market repricing has its main impact now and nowhere more obviously than a super-charged U.S. dollar around the world.

A rewriting of Fed scripts has only been matched by a scramble to upgrade dollar forecasts by numerous global banks from Goldman Sachs (NYSE:) and Citi to HSBC and Deutsche Bank (DE:).

A host of political flashpoints worldwide have underlined a bid for perceived dollar safety and liquidity. The picture includes mid-winter energy stress over high oil and gas prices and how to react; rising military tensions in Europe between NATO and Russia over Ukraine and Belarus and even fractious relations between the West and China over Taiwan and militarisation of space.

Wild swings in emerging currencies reflect the tremors.

A self-contained inflation black spot, policy conundrum and geopolitical worry all on its own, Turkey – who’s lira has lost 85% of value against the dollar over the past decade – saw the dollar exchange rate balloon more than 10% on Tuesday alone, clocking a rise of more than 40% so far this month.

may be a longtime outlier and an extreme example. But emerging currencies from or Poland’s zloty and Hungary’s forint all hit their lowest for the year this week.

And it’s not just the currencies of developing economies. The dollar’s index against the other major currencies hit its highest since July 2020, while the greenback hit its highest in four years against Japan’s yen and 2021 highs against the euro and sterling. Dollar rises as Fed rate speculation mounts, https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkwzyxpx/Fed.PNG Volatility rises with dollar,…