America's strengthening dollar will rattle the rest of the world

In 1971 John Connally, then the American treasury secretary, told his European counterparts that the dollar was "our currency, but your problem".

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Over the following half-century the global economy has transformed, but Connally's adage still rings true: even though the value of the dollar remains largely set by domestic developments in America, its swings almost always send ripples across the world. One such big swing may be on the cards, as the economic policies promised by Donald Trump, America's president-elect, look set to turbocharge the greenback.

That spells trouble for growth in the rest of the world.

Exactly what parts of his economic agenda Mr. Trump will want—and be able to implement—is not yet clear. But the giddiness in America's stock markets gives clues as to what investors expect (the S&P 500, an index of large American firms, hit successive records on November 6th, 7th and 8th).

Traders reckon the incoming administration will boost profits at American firms through tax cuts and deregulation, as government borrowing soars.

A combination of higher deficits and rekindled inflation, in turn, may force the country's central bank to keep interest rates higher than it would have without Mr. Trump in power.

Those higher rates would make holding dollar securities more attractive, providing a tailwind to the greenback.

Part of this scenario is already playing out. On November 7th the Federal Reserve, as expected, cut its benchmark interest rate by a quarter of a percentage point, lowering its target range to 4.5-4.75%.