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El-Erian Says Monetary Policy To Lead To Strong Dollar

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  • Mohamed El-Erian was a guest on Friday's edition of #PreMarket Prep, where he discussed how China's struggles relate to the U.S economy.
  • El-Erian is the chief economic advisor for Allianz and the chair of President Obama's Global Development Council. He's also a best-selling author with a new book, The Only Game In Town, scheduled for release January 26th
  • Tune in to PreMarket Prep live every Monday-Friday from 8-9:30 a.m. ET here for trading ideas and analysis from Joel Elconin and Dennis Dick

Divergent monetary policies of the world's central banks are going to cause the U.S. dollar to rise in value, according to economist Mohamed El-Erian.

El-Erian, speaking Friday on Benzinga's PreMarket Prep, said it will be the result of differing policies of the Federal Reserve compared to the central banks of Europe, Japan and China.

"Normally there are other steps that can be taken to reconcile this," he said. "But because of political polarization, the only game in town right now are central banks and the exchange rate. So it's hard to see the dollar not strengthen as we get more divergent central bank policies."

With the turmoil in China leading to the worst opening week on record for the Dow and S&P 500, the question on everyone's mind is how long this downward trend will continue for many of the global markets. According to El-Erian, how long investors are on edge will depend on how much concern there is over China compensating for their weakening economy by "stealing growth from other countries."

"China can deal with a slowdown much better than other countries," he said. "But if it starts stealing growth from other countries, than the market worries about countries that are less strong financially than China is. We must not forget that china has massive international reserves and has minimal external debt."

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