Mohamed A. El-Erian , Columnist

Why This Dollar Surge Is Different for the Fed

The currency's increase, which hasn't affected stocks, gives more reason to expect a rate hike in December.

October 26, 2016 at 2:00 AM EDT

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

Golden ticket.
Photographer: Xaume Olleros/Bloomberg

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The dollar has returned to highs it last reached nine months ago. The drivers of this increase are similar to those that caused the currency to surge earlier this year. Yet, this time, the impact on financial markets has been quite different. And if this persists, the implications for Federal Reserve policy will also be different.

Traders have pushed the dollar higher based on their confidence of an approaching divergence in central bank policies – that is, a tightening by the Fed even as other systemically important institutions such as the European Central Bank, the Bank of Japan, the Bank of England and the People’s Bank of China maintain or intensify their loose stance. But in contrast to the earlier period, the impact on U.S. stocks has been very muted.

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