Après nous, le deleveraging? The rally in the U.S. dollar, coupled with seismic changes in the $2.7 trillion money-market fund (MMF) industry, is sparking a fresh bout of cross-border deleveraging, according to new analysis from Citigroup Inc.
That's because a stronger dollar tends to pressure foreign companies that have borrowed in greenbacks, causing banks to cut down on their international lending as risks in their corporate loan portfolios increase. Any pullback in cross-border lending would intensify concerns that the dollar rally sparked by Donald Trump's win in the U.S. presidential elections could have a knock-on effect on economic growth around the world.
"Both MMF reform and deleveraging episodes are global growth negative as they are both harmful for the end users of dollars," warn Citi analysts led by Jabaz Mathai. "The shift in the U.S. from a monetary to a fiscal stimulus is conducive for dollar strengthening which may carry into 2017."
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