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KING DOLLAR

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U.S. Dollar banknotes are seen in this photo illustration.Jose Luis Gonzalez/Reuters

The dollar juggernaut rolls on. The U.S. currency has rocketed to a near three-year high versus the euro, a 10-month high against the yen and an 11-year peak versus the Aussie. This month alone it’s added 2.5% against six currency peers.

Economic indicators are reinforcing the U.S growth engine’s outperformance. The United States has the highest bond yields among developed nations and its companies keep beating earnings forecasts. It’s relative resilience to coronavirus damage makes it today’s safe-haven of choice.

President Donald Trump has been oddly silent on the subject but it’s probably a matter of time before he accuses rivals of devaluing their currencies to aid exports. Could the G20 meeting in Riyadh be the forum where Washington starts to chastise? And will it do that in private meetings or opt to name and shame?

Another question is when dollar strength will make its impact felt on U.S. trade and companies’ bottom lines. Corporate America waving red flags may be what finally gives the dollar pause. For now, the 1971 comment by U.S. Treasury Secretary John Connelly comes to mind: “The dollar is our currency, but it is your problem.” It’s certainly a problem for the global economy.

V OR U?

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People walk past an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo Tuesday, Feb. 18.Eugene Hoshiko/The Associated Press

An apparent slowdown in infection rates had fed hopes the coronavirus outbreak may peak in China. But hold the celebrations. More people are being struck down in other countries, with deaths reported as far away as Iran. South Korea’s fourth-largest city, Daegu, has been gripped by fear after dozens caught the virus in what was described as a “super-spreading event” at a church.

Not only is the virus believed to be more contagious than previously thought, but other countries may not be able to replicate Beijing’s draconian containment measures. Then there is the fear factor - shops and restaurants are deserted and factories and offices shuttered. The World Bank estimates such outbreaks, and measures to contain them, cost an average of 1% of GDP annually — this year that adds up to about $870 billion.

World markets have banked on the virus impact being V-shaped — a sharp economic decline, then a swift rebound. IMF director Kristalina Georgieva said that scenario was still possible. But depending on how far and fast the virus spreads, the outcome could well be “like a U curve where the impact is somewhat longer”, she warned.

A YEN FOR YOUR THOUGHTS

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A pedestrian walks past a stock indicator displaying share prices of the Tokyo Stock Exchange in Tokyo on Jan. 9.BEHROUZ MEHRI/AFP/Getty Images

Japan-watchers have seen this movie before. In 2014, a sinking economy forced a rush of yen out of Japan. And rumor has it that this week’s sudden 2-yen drop in the currency past 112 per dollar was caused by Japanese pension funds sending cash overseas, maybe even with the government’s blessing. If 2014 is a guideline, the depreciation has long legs.

Yen weakness is what the doctor would prescribe; the world’s third-largest economy is reeling as neighboring China struggles and coronavirus cases at home mount. Recession looks likely as tourism, factories and consumer demand struggle; even the Olympics in July may be at risk. If upcoming industrial output and retail sales data further amplify the fears, it might be a catalyst for the Bank of Japan to abandon its elusive inflation target and prioritize growth.

FIREFIGHTERS

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Pedestrians walk past the facade of Argentina's Banco Nacion (National Bank), in Buenos Aires, Argentina on Feb. 19.AGUSTIN MARCARIAN/Reuters

These are busy days for the International Monetary Fund. Preoccupied with the coronavirus fallout, it is also being asked to resolve the mess in several emerging markets where things have gone sour.

An IMF team will wrap up a three-day visit to Lebanon on Sunday. While the aim is ostensibly to dispense “technical advice” on a crippling financial crisis, it may not be long before the fund is asked by Beirut for a formal bailout

The lender is also fighting fires in Argentina. It ended a week-long visit with a verdict that the country needed a plan to restructure debt. Of course, there are those who say the fund is only sorting out a mess it helped create; Argentine economy minister Martin Guzman claims austerity policies prescribed under the fund’s 2018 bailout contributed to the crisis.

Jordan, Egypt, Papua New Guinea and Ukraine are some of the other countries grabbing the fund’s attention. As demand for IMF guidance rises, the institution might be reviewing its approach. Fund chief Georgieva has suggested flexible exchange rates — often the centrepiece of IMF advice to struggling countries — may not always be the most suitable shock absorber.

Lebanese authorities might be wondering if their country will be the guinea pig for any IMF policy rethink.

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