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U.S. Dollar Dependence Sets Markets for `Liquidity Crunch'

  • Dollar credit outside U.S. has climbed since global crisis
  • Stronger greenback, rising U.S. yields set to impose strains
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The current run-up in U.S. Treasury yields and the dollar poses a major stress test for a global financial system that has become even more dependent on the American currency since the last credit conflagration.

Mehul Daya and Neels Heyneke, strategists at South Africa’s Nedbank Group Ltd. who have analyzed the role of the greenback’s liquidity in past crises, argued that “a stronger U.S. dollar and the global cost of capital rising is the perfect cocktail, in our opinion, for a liquidity crunch” in a note Thursday.