The dollar could sap US growth momentum early in the Fed hiking cycle

The New York Fed took a look at how much the rising US dollar could eat into US trade and eat into US GDP growth.

They note that the US dollar has appreciated significantly against all its major trading partners, ex-China.

"Our analysis shows that a 10 percent [USD] appreciation in one quarter shaves 0.5 percentage point off GDP growth over one year and an additional 0.2 percentage point in the following year if the strength of the dollar persists," they report.

The model only looked at trade and ignored possible other effects like exporters restraining investment or laying off workers but importers would see offsetting benefits.

How much has the US dollar risen?

The Fed's trade-weighted US dollar index is up 22.28% since last June.

Here are the weights in the index. A fall to parity in the euro and breakouts in USD/CAD, USD/JPY and USD/MXN could weigh much more heavily on US growth.