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That was exactly my point though. The way you “fight inflation” is you raise the rates and that means all currencies pegged to yours must raise their rates at t
by mercy_dude 4y ago
That was exactly my point though. The way you “fight inflation” is you raise the rates and that means all currencies pegged to yours must raise their rates at the same pace no matter what their economic conditions are like or they get destroyed in FX market. Look at right now EUR, GBP or YEN. The way Fed fights inflation is nothing but rest of the world (mostly developing world) pegged to your dollar monopoly bailing you out. And that inevitably requires hard commodity asset repricing.
- refurb 4y agoEurope is having massive inflation to (also did quantitative easing), so of course if the US tightens rates the EU would have to tighten as well to maintain exchange rate parity? It has nothing to do with US dollar dominance, this interrelationship also happens with non-dominant currencies as well.
- mercy_dude 4y agoAgree Europe is a different story altogether- their currency free fall against Dollar is more to do with the mixed signal ECB is sending by still having to buy Italian and Greek bonds that find no other buyers AND at the same time trying to do a rate hike. And that is at the backdrop of a cold nuclear (potentially) winter. > It has nothing to do with US Dollar dominance Say that to Sri Lanka, Bangladesh, Pakistan, Iran, Argentina or literally any other developing currencies out there.
- pishpash 4y agoIt's very simple, the US did the most easing due to the "exorbitant privilege" and so has the strongest economy coming out of the pandemic and so it can afford to raise rates the most and so it exports its inflation to other countries via the FX market.