The strong dollar: Why and how long?

Lara de la Iglesia: Roger, what are some of the key factors that are driving the appreciation of the U.S. dollar against most currencies right now over the past year? And do you think that's going to be short-lived, or is that something that'll be with us for a while?

Roger Aliaga-Diaz: Yes, usually there are two big drivers of the U.S. dollar. One of them is thinking that the dollar is a world reserve currency. So in periods of weakness in the markets and the global economy, people tend to fly to safety, right? And that tends to strengthen the dollar. So right now we're going through a very complicated period, volatile markets, and we are probably seeing a little bit of that.

The second driver of the dollar is textbook economics, right, monetary policy, central banks. When the Fed raised the rates ahead of everyone else, that tends to strengthen the currency, the dollar in this case. And the Fed has definitely communicated a very aggressive path of rate hikes.

Other central banks are doing the same, but they're in some sense lagging a little bit. Right, the Fed is leading the way. So there is a little bit of a lull really here. Like the Fed being really aggressive, perhaps even causing the slowdown, and that triggering that flight to safety, right? The two things combine and we have this unprecedented level of strength in the dollar we haven't seen in years.

I would say it doesn’t need to last. I think it's more cyclical. We could definitely be here for a while, for the next year or so, but eventually recessions don't last forever. Monetary policy normalizes. All the central banks will catch up to where the Fed is, and at that point, I would expect currencies to kind of get back towards equilibrium levels, right? So not necessarily something I expect to be a permanent feature of the market going forward.