US rate rises hit global markets harder as dollar supply tightens

The Financial Times reports that higher US rates are having an amplified effect in global markets as dollar availability tightens. The pressures identified are the Iran war and shifts by China, which are changing the supply of dollars available internationally.

The development follows a period in which global borrowers, banks and investors have remained exposed to dollar funding conditions even when their underlying activity is outside the United States. A tighter supply of dollars can make US rate changes transmit more forcefully through cross-border financing and exchange-rate markets.

The mechanism runs through access to dollar liquidity: reduced availability raises the importance of funding costs, hedging and rollover conditions for institutions and companies that borrow or settle in dollars. China’s policy shifts affect one part of that international flow, while the Iran war adds a geopolitical source of disruption.

The scale and duration of the effect remain open questions. The next evidence will come from changes in dollar funding conditions, cross-border credit and currency markets, alongside developments in the Iran war and China’s policies.