The ViewForget the trade war – it’s the strong US dollar that should really make us worry

The biggest financial issue of the moment is not the collapse of the Turkish lira, or Britain’s impending ignominious exit from the European Union. Nor even Donald Trump’s tariff temper tantrums, or China’s worryingly slowing growth. It is the mighty dollar.

The United States has always taken the position of former US treasury secretary John Connally, who told European finance ministers in 1971 that the dollar “is our currency, but your problem”. The Europeans at the time were worried about a weakening dollar – this time it is the reverse. According to the Bloomberg dollar index, in four short months, the US dollar has roared up to levels not far from the peak two years ago. Before then, you would have to go back 15 years to see the dollar this strong.

Trump’s economic policies, intentionally or not, have powered the dollar at a time when it usually cyclically weakens, even with the Federal Reserve increasing interest rates.

Trump’s tax cuts stimulated the US economy (while creating enough debt to make our grandchildren’s eyes water) and encouraged the repatriation of maybe a quarter of the US$3.5 trillion held overseas by American companies. It’s then a momentum game – the more dollars are bought, the more it goes up, and the more people will buy dollars.

Turkey has some US$467 billion of gross foreign borrowings. In Turkish lira, those debts are now worth twice what they were a year ago. A decade and a half of irrational economics under Turkish strongman President Recep Tayyip Erdogan means that the government does not have the resources for a bailout.