US dollar → Emerging markets

Where it stands now

Where the two indicators stand this issue

US dollar: 1.3% above its 10-year average, but by less than it usually is. Emerging markets: Positions of 9 national stock markets, weighted by market value 53.

Tests

Does this link hold up?

1. Common explanationA strong dollar makes emerging economies’ dollar debts heavier, drives money out and tightens financial conditionsSource: Bank for International Settlements, “The broad dollar exchange rate as an EME risk factor” (2020). It looks at emerging economies’ economic and financial conditions and does not test stock prices directly.
2. Tested against our dataAgreement between the positions of US dollar and Emerging markets (3-month lag), measured in the direction of the common explanation: +0.56 (an opposite-direction link: the raw correlation is −0.56, and a negative correlation fits, so the sign is flipped). Looking at every 5-year period (shifted one year at a time), the two moved in that direction in all 5, but that does not mean they always will; data start only in 2017. ●●●Supported by the data
3. Periods when it did not holdAcross 5 5-year periods, out of step in none.

History

The two lines, overlaid

US dollarEmerging markets

Time lag

At what lag do they match best?

Longer bar = moves more in the direction of the common explanation (the number is the agreement).

• same month+0.64
• 3-month lag+0.56
• 6-month lag+0.43
• 9-month lag+0.28
• 12-month lag+0.25
• 18-month lag+0.16

Limits

What this card cannot tell you

• Moving together does not prove that one causes the other.
• Links change over time; periods when this one did not hold are listed in full.
• This is the historical record, not a forecast.