Part 4/9:
Groman elucidates why a strengthening dollar is deemed negative for risk-on assets, citing that it raises the cost of servicing dollar-denominated debts for foreign nations. As these nations turn to the U.S. Treasury market to meet their debt obligations, destabilizing effects on stock and bond markets can ensue. The interplay between the dollar’s strength and global economic dynamics is critical, as high dollar valuations could prompt asset liquidations from foreign holders, cascading back into U.S. markets.
Essentially, Groman argues that the U.S. economy heavily relies on a weak dollar to support consumer spending and to prevent a downward spiral in its economic activity. If the dollar remains elevated, it could challenge the sustainability of the current financial ecosystem.