The world is changing, a deep recession is expected and central banks are reversing their monetary policies. As a result, the world’s currencies are going on a roller coaster where they haven’t been for years. What will it lead to?
For a long time, currencies were almost unknown. Over the past fifteen years, global currencies have been an uninteresting topic for most people, calm waters that have occasionally been clouded by the yuan, the fall or rise in the dollar in the context of the US election. And in the Czech Republic, once every few years, a lot has been said and written about the adoption of the euro.
But otherwise silence along the path. On the contrary, there has been a lot of talk about government bonds, stocks, corporate bonds, derivatives and other financial instruments.
But now the situation has changed, and damn dramatically. Very interesting changes are taking place in currencies right now.
Gold has been at a two-year low. The downward pressure will intensify
On Thursday afternoon, the price of gold surpassed $ 1,665 per troy ounce, the lowest level in more than two years. The last time gold traded at similar values was at the end of April 2020. The reason is the latest data from the US economy, especially Tuesday’s August inflation data, which exceeded expectations. of analysts.
Meanwhile, the most important story of the last few months has been the dollar. It underwent an interesting development after the pandemic (certainly also linked to the work of former President Donald Trump and his subsequent replacement by Joe Biden) and is currently again the undisputed world currency.
The dollar is also that high, it’s not true this leads to many problems especially in developing countrieswhere the dollar is often the main alternative currency, but also an important trading currency in relations with other states.
Bye bye book
Conversely, the British pound is experiencing a fundamental fall. After the infamous vote to leave the European Union, Great Britain has never returned to the fore. The wave of populism has already worn off, despite initially declared dreams, Britain has failed to negotiate those favorable bilateral agreements with individual states and the poor are facing shortages.
Pound falls faster since Thatcher’s time. The new prime minister has a problem
The new UK premiere has a lot of work to do. One of the most poignant will be the once-vaunted free fall of the pound, which is at its weakest point against the dollar since 1985, the reign of Iron Lady Margaret Thatcher.
The coronavirus pandemic and the current problems associated with the war in Ukraine have completed what Brexit has bit. Although the pound is cheaper than it was a decade ago, British traders are unable to compete in global markets, leaving the country unable to take advantage of the one advantage offered by a weakened currency. Add to this dramatically rising inflation, the impact of the past six years on local residents and their standard of living is truly profound.
Japanese shock
The Japanese yen is also experiencing a shock, a currency a bit downwind also because Japan traditionally has a completely different economic development compared to other developed countries. In fact, Japan has long struggled with deflation, while other countries had opposite problems, namely inflation.
This is also why the weakening of the yen has had a positive impact on the Japanese economy, which was recently tried by the recently assassinated Prime Minister Shinzo Abe.
Former Japanese Prime Minister Abe died after the morning murder attempt, the world condemned the attack
Former Japanese Prime Minister Shinzo Abe, killed today by a murderer, is dead. This was reported by Japanese state television NHK and the Kyodo news agency, which refers to a source from the ruling Liberal Democratic Party (LDP). The attack was previously condemned by Japanese Prime Minister Fumio Kishida and many world politicians.
However, at the moment, the yen’s fall is having completely different effects. According to Bloomberg, the fall in the yen makes energy imported from Japan more expensive. And this is causing general inflation that the Japanese were not used to. And as a result, they can’t even compete with other countries on global markets like the British.
Consequentially Japan is in danger of running into a foreign trade deficit for the first time in forty yearsthat is, it matters more than you export.
Euros in a pinch
And then of course we have the euro, which is perhaps experiencing its worst moments. The European Central Bank is in the running of a mill: on the one hand there is a record inflation of over ten percent, on the other there is the threat of the default of large and overly indebted economies. Therefore, the ECB still has to raise interest rates very gently to help partially tame inflation, but at the same time not to endanger Italy and Spain above all in their functioning.
The euro is therefore very sad proof that solving the problems of the euro area is almost certainly impossible. In recent months, the European common currency has even fallen below par with the dollar as the US Fed has raised interest rates much more aggressively, despite the wishes of investors in growth stocks.
Koruna na steroidech
And what the crown does throughout the story, you are probably wondering. There’s a double influence here too, and this time it’s not a pressure, but rather a push. It is partly driven by the euro, because global investors know that the Czech Republic is economically another federal state. But it is also partly dragged to eastern hell, because Czechia is, after all, a former socialist bloc countryand therefore the events in Ukraine have a significant negative effect on the crown.
To maintain the exchange rate, the Czech National Bank is melting euros in large quantities. As a result of several years of intervention, it has plenty of it, so despite the general fear of “reducing euro stocks”, it still has plenty of it.
Perspectives?
It can be seen that currencies are indeed now the field in which a whole host of struggles and problems are occurring. This was not the case during the last crisis. And that is why it is good to be aware of it.
Perhaps this is just the effect of the fact that central banks, traditionally rather ossified and lifeless institutions, are trying to take their rudders towards a more normal course (i.e., where interest rates are always positive and money printing is the last resort).
However, currencies also have a highly symbolic level for most people, and currency problems often lead to tragic historical events. Let’s hope it’s different this time.
The Commission wants to withdraw € 7.5 billion from Hungary from EU funds
The European Commission has proposed to withdraw 7.5 billion euros (184 billion crowns) from European Union funds from Hungary, inter alia, due to the insufficient fight against corruption and the problematic allocation of public contracts. The EU executive is sending a proposal to member countries for approval, which can deprive Budapest of around a third of its money from cohesion funds, European budget commissioner Johannes Hahn announced today.
All about inflation
Scarecrow of inflation. What causes it? How to defend yourself from her? How to invest, where to save, where are there decent interest rates, which bonds are worth? How do the state, the government and the NBC fight inflation? Who and why increases the price and by how much? How to deal with price increases? Is it the right time to get a mortgage, will interest rates rise or fall and why? Context, suggestions, suggestions, warnings.
High inflation worries not only Czechia, but also other European countries and the United States. See the overview in the world.
Topics related to inflation:
Read all about inflation here
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