A Surging Dollar Is a Mixed Blessing for the US

As US markets were closed to mark the Labor Day holiday, the dollar index surged to a new three-decade high.

This is a reminder that the dollar is a relative, rather than an absolute, price — that is, it measures the value of the dollar relative to other currencies. But this also signals that while the US is likely to outperform other countries in most global macroeconomic scenarios for the year ahead, policy makers and market participants still need to keep a close eye on what’s going on elsewhere in the world, as global events will have a meaningful impact on the overall wellbeing of the US.

On Monday, the DXY dollar index appreciated to a level not seen since 2001. The move was driven by broad-based weakness in other currencies, with particularly notable moves against Sterling (which hit a new record low against the dollar) and the Euro (which traded below 0.99 to the dollar).

The major driver of dollar strength on Monday was yet another disruption to the European gas market as Russia announced an extension to the shutdown of the Nord Stream pipeline. Gas prices opened the European trading session 25% higher than Friday’s before moderating somewhat. With Russia weaponizing gas supplies in reaction to the West restricting its access to the international payments system and formulating energy price caps, a highly damaging total shutdown of supplies in the months ahead has become an alarmingly real, if not highly likely, possibility.