As global central bankers seek to manage inflation, global currency volatility has risen. Central banks typically adjust national borrowing rates among banks to slow the volatility of money, a key tool to fight soaring inflation. Price surges ensued following massive government stimulus in the wake of COVID lockdowns. While stimulus was a helpful boost against slowing economics, politicians around the world approved spending at rates that would make drunken sailors blush.
An estimated US$17 trillion had been poured into the global economy through September 2021, In the simple price calculation of “money divided by stuff”, prices of everything skyrocketed. The U.S. Treasury and Federal Reserve increased the money supply by a staggering +40%. After expressing surprise at the rapid inflation, both Fed Chair Jerome Powell and Treasury Secretary Janet Yellen now face a difficult dilemma of raising interest rates while seeking to avoid a recession.
The U.S. Federal Reserve’s recent rate hikes and pledge of future rate hikes sent U.S. dollar values surging higher. The higher yielding U.S. bonds are being aggressively chased as global investors dump local currencies.
Global exporters benefit from weak currencies while global importers benefit from strong currencies. An obvious shift will be a strong U.S. appetite for imports (YTD beef imports are up +27%, pork imports are up +48%). Expect these trends to strengthen as U.S. rate hikes continue. – Brett Stuart