Dollar might strengthen

Tensions add to flight to dollar. With Saudi Arabia snapping ties with Iran and with US there is anxiety at turn of events on the geopolitical front. The Middle East, at least at the sub terrain level, seeks some conflagration so that oil prices are increased a shade. Any violence,  might instead , add to dollar strengths more  . Oil  may pick up but not so significantly unless there are clearer signs of supply shortages, which is highly unlikely as of now.

Thus, the USD may not have peaked as yet.. Any small move up in oil prices is good for neutral countries like Qatar, Oman and UAE among the GCC countries.  Indo-Pak uncertainties show that economic factors may be a consequence of geo- political tensions.. In a more refined world, economic requirements should destress political tensions but  that seems faraway.

Commodity prices might look up a shade but the turn of events seem good for US stocks. Indian corporates are going to see input and import costs a trifling more ; so the Indian  stock market should be under some pressure.


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Gcc economies and the paradox of a dollar peg

Gcc countries are seeing the oil prices fall like sad and mad. So the Government revenues are seriously constrained by falling  inward flows. Except Kuwait,  the GCC countries have their currency pegged to the US  dollar. As dollar increases in international markets, their- GCC household purchasing power goes up and real incomes go up because of appreciation.  So even as national income falls the households experience counter party values rising as their pegged currency rises on the back of dollar. They import more. This affects the trade figures. Imports are cheap and so marginal propensity to consume more. You import and consume more even as national incomes fall. The paradox of a peg.