How much is the US dollar shaping global markets right now?

The US dollar has faced competing pressures, propelled in markets as a result of high-interest rates prompting inflows, yet also declining as belief grows that the Fed is done with its monetary tightening cycle. The dollar's strength was spurred by aggressive Fed policy which impacted many emerging market currencies, but with the Fed potentially pausing hikes now, some experts see room for recovery in battered currencies like Argentina's peso.

Argentina faces immense economic hurdles with 143% inflation, negative foreign reserves, and the possibility of a recession. Yet hopes have pinned on newly elected President Javier Milei to lead a turnaround. A key part of his plan is shifting Argentina to use the US dollar as opposed to the peso. By eliminating the peso and adopting the U.S. dollar instead, Milei aims to tame inflation pressures and stabilize Argentina's economy.

Yahoo Finance's Jared Blikre breaks down the details of the US dollar, providing insights into global currencies and stock markets that have benefited or been impacted by the dollar.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video transcript

BRAD SMITH: Argentina has elected a new president, the libertarian Javier Milei0 won a second round runoff vote on Sunday with about 56% of the vote. Now he has the task of turning the country's economy around amid 143% inflation, foreign currency reserves, excuse me, in the red and a looming recession. One of his pledges to fix the situation is ditching the peso, shutting down the central bank and committing to dollarization.

Argentina's peso has been hit with a crisis and recession that has sunk its value and left it with a wide array of exchange rates. Milei and his advisors see turning to the US dollar as a way to stabilize the economy and the country. Meanwhile, the US dollar is extending losses. The greenback sliding to a more than two month low as traders believe that monetary tightening is over and are now focused on the fed cutting rates.

As the dollar falls, some investors will be looking for opportunities in emerging markets. So here with the details on some EM trends is our very own Jared Blikre. Hey, Jared.

JARED BLIKRE: Hey, Brad. You nailed it. It's all about what the fed is doing. In my last hit an hour ago, I was talking about interest rate differentials. When you have a really strong currency like the United States, and you have higher interest rates than just about the entire world, people are going to rush into your currency, and that's going to push the value of the dollar up in others down.

But at this stage in the business cycle, markets are forward looking, they're looking to the fed increasingly being seen as being on hold. So if the fed isn't going to raise rates anymore, no need to scramble into the US dollar, therefore, this is the time of the business cycle when emerging markets can potentially flourish. But first, before I get into some of the indices around the world, I want to focus on currencies first.

This is the US dollar versus a bunch of pairs around the world, and we were just talking about Argentina, well, the US dollar is up 100.1% versus the Argentine peso. Just think about that. That is an incredible rate. That means the value of their currency is just about halved in this very short time period that's not even one year. If you take a look over the last five years, 884%-- that is not something that bodes well for anybody who's borrowing in US dollars down there.

But back to the main point, the US dollar has been strong for the year, but it has fallen off in the last few days. Let's take a look at a one month view, and you can see there's a lot more red here than there is green. That means that the dollar weakening is now a tailwind for stocks. Now let's get to some of the sector-- not sectors, some of the index action here. Just one more screen, and there we go.

We're going to see-- if I can pull this up. It doesn't want to cooperate. We'll have to see-- there we go. Sorry about that, guys. Here we go. We have the indexes that I was looking for. Year to date, we see-- over actually one month to date, we see the Bovespa, that's Brazil, that has benefited the most from the dollar weakening over the last month.

Then we have the NASDAQ that's been up another 9% after flagging for a few months. We got Spain, we got Germany, all of those outperforming the S&P 500. So this really has been a time potentially for that shining and just on a year to date basis, you can really see the outperformance still of the US. NASDAQ composite up 35%, Nikkei up 28%. Pretty large differential there from a lot of these other indices. For instance, the Hang Seng which is down 10%.

China sometimes considered still an emerging market, that's debatable, but it has definitely had some of the worst problems this year.

SEANA SMITH: All right, Jared. Thanks so much for the deep dive here in terms of what we're seeing play out from around the world.