The dollar's quiet rally is squeezing emerging-market borrowers again

NEW YORK — The dollar does not need a crisis to cause one elsewhere. A grinding rally, fed by relative U.S. growth and the slower Fed path now in the price, is lifting the local-currency cost of dollar bills for companies and governments that borrowed when money was cheaper and the greenback was less loved.

This is not 2013 and it is not 2018. External balances in several large emerging markets are healthier, and local-currency markets are deeper. What has not changed is the original sin of global finance: a great deal of trade and a great deal of leverage still clear in dollars. When the DXY firms, working-capital lines get shorter even if nothing "broke" in New York.

U.S. multinationals feel a milder version of the same math in translation. A strong dollar trims overseas earnings when they are brought home, which is why a handful of S&P names with heavy European and Latin American exposure have started to talk about hedging costs on their calls again.

The policy implication is unglamorous. Emerging-market central banks that had hoped to ease in sympathy with the Fed may have to keep real rates higher than domestic politics would like. That, in turn, caps the growth impulse that global equity bulls need from outside the United States. A U.S. business publication can treat that as someone else's story only until it shows up in a supplier's delayed invoice.