US Inflation at 9.1%. USD soaring. INR USD breached 80. Euro pars with USD. USD gaining as markets ‘believe’ that Fed will ‘act’ aggressively on interest rates rise to combat high inflation. As interest rates rise, dollar gains.
The dollar gain is dependent on Fed’s action on interest rates hike which has been resorted in past, only the debt burden has been never that high before.
As interest rates increase, the debt service cost increases which is not so good for the economy and fiscal position.
Large debts are often funded by printing more money and devaluing the currency. Thus, as the debt alarm rings, dollar will dive.
Markets (Stock, Bonds, Currencies) are oscillating between higher inflation data and Fed’s words of hope to increase interest rates to combat inflation and avoid recession. Volatility shall stay for a while.
Below chart shows movement of US Dollar Index, Inflation and Interest Rates.
- Ushma
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