(12 September 2022 – Global) Global economic stability continues to be disturbed by enormous ructions taking place between major foreign exchange (FX) rate pairs.
The Euro (EUR) is now at parity with the US Dollar (USD), Sterling (GBP) fell to its lowest level against the dollar since 1985, with many analysts predicting it to fall further, while the Japanese Yen (JPY) has continued depreciating against the USD, set for its worst year on record. The strength of the greenback has significant implications for advanced and emerging markets.
In advanced economies, central banks are playing catch-up with the Fed to avert a further weakening of their currencies, essentially “importing inflation”. Rising official interest rates more problematic for some countries as energy crisis borrowing adds to already high pandemic debt loads.
In emerging markets it threatens balance of payment crises by raising dollar-denominated debt burdens and driving disruptive capital outflows. Up to 20 emerging markets have debt that is trading at distressed levels according to the IMF.
“It’s energy, it’s business confidence and it’s inflation. The Euro always has diehard investors but it seems that the parameters have shifted” commented Rabobank Head of Currency Strategy, Jane Foley.
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