Something strange is happening in markets. While the dollar and the oil price have historically moved in opposite directions the correlation has suddenly flipped positive: a higher oil price is helping the dollar rally and vice versa (chart 1). Is this sustainable? In many ways it could be: Fed hawkishness was driving the dollar stronger against both currencies and commodities last year. This time round, the oil price rally is pushing US inflation expectations and US long-end rates higher. How important is this as support for the dollar? For EM currencies reliant on unhedged local debt inflows it is very important: a ... (full story)