Oil slide softens dollar's inflationary bite

When the U.S. dollar jumps, the rest of the world holds its breath, awaiting the bout of imported inflation that often follows. The sound you hear now, however, may be a collective sigh of relief, Reuters reported.

The dollar, boosted by rising U.S. rate expectations, is the ​strongest it has been in over a year against many major rivals, including the euro and yen . It's also at multi-year peaks against many emerging market currencies: South Korea's ‌won hit a 17-year low earlier this month.

A weak domestic exchange rate raises the cost of imported goods, materials and inputs, especially dollar-denominated energy and commodities that all countries rely on to varying degrees. But the greenback's inflationary impact is being offset now by a steep slide in global energy prices triggered by the U.S.-Iran interim peace agreement.

This will be a huge relief for policymakers everywhere, particularly in energy-importing countries in Asia that had entered an ​exchange rate/inflation doom loop. Inflation fears push the currency lower, intensifying price pressures and raising inflation expectations.

They may be closer to exiting that loop than they imagined only a few weeks ago.