Currency Strength: Becoming Fashionable in the West, Less So in Japan and China

Macroeconomics

365 Views, 24 Jun 2022 17:18

EXECUTIVE SUMMARY

The Fed raised the ante in fighting inflation. Financial markets remain wary of downside risks, while even the Swiss National Bank raised its policy rate to counter rising inflationary risks.
Financial fragmentation risks prevent the European Central Bank from engaging in Fed-style quantitative tightening, potentially prolonging higher inflation, while the Bank of England has been accused of being too timid.
Pressure on China and Japan to tighten policy has been mitigated by low inflation compared to Western economies. Currency movements depend on central banks' willingness to replicate Fed policy.

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