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  • Battles to come
  • Why a stronger dollar is dangerous
  • It sets the stage for a nasty new Trump-China clash, among other things
  • THE DOLLAR is looking formidable. As American growth has stayed strong and investors have scaled back bets that the Federal Reserve will cut interest rates, money has flooded into the country’s markets—and the greenback has shot up. It has risen by 4% this year, measured against a trade-weighted basket of currencies; the fundamentals point to further appreciation. With a presidential election looming, and both Democrats and Republicans determined to promote American manufacturing, the world is on the verge of a new period of strong-dollar geopolitics.

    This situation is made still more difficult by the fact that the currency’s strength reflects weakness elsewhere. By the end of 2023, America’s economy was 8% larger than at the end of 2019. Those of Britain, France, Germany and Japan each grew by less than 2% during the same period. The yen is at a 34-year low against the dollar. The euro has dropped to $1.07 from $1.10 at the start of the year (see chart 1). Some traders are now betting that the pair will reach parity by the beginning of next year.

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