The market volatility in the first quarter of 2016 has left investors with a confusing market to negotiate in the remainder of the year. In the context of a global economy which looked relatively resilient in January, the market fall looked little short of hysterical. The correlation between different asset classes became very high, as tends to happen during periods of pronounced market stress. This meant there were few places for investors to hide. Market commentators have been arguing about the main culprit for the instability. We think the US dollar is the first place they should look.

The stronger dollar

Much of the turbulence harkens back to the middle of last year. Markets grew increasingly certain of a rate rise from the Federal Reserve (Fed) during the latter half of the year and in December, it was enacted. From mid-July 2015 into January 2016, the US dollar rose steeply; ......