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Argentinian President Mauricio Macri's government has asked the International Monetary Fund for a loan that it hopes can stem a peso rout that has driven up interest rates, will slow the economy, and threatens the reform program. This reversal of fortune for the economy partly, though far from fully, reflects broader pressure created by the U.S. dollar's recent appreciation – a process that is set to accelerate, because both monetary policy and growth differentials are now favoring the United States.For a while now, the U.S. Federal Reserve has been well ahead of other systemically important central banks in normalizing monetary policy – that is, raising interest rates, eliminating large-scale asset purchases, and starting the multi-year process of shrinking its balance sheet. To cite one dramatic example, declining economic indicators caused the implied market pricing of an interest-rate hike ahead of the Bank of England's policy meeting this month to plummet from over 90 percent, or a near-certainty, to 20 percent in just a few weeks.So economic and financial factors can be expected to continue to fuel the appreciation of the U.S. dollar.To be sure, some may view the U.S. dollar's appreciation as consistent with a longer-term rebalancing of the global economy. But, as Argentina's situation demonstrates, excessively sharp and sudden appreciation of such a systemically important currency risks unbalancing things elsewhere.
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