What would an era of higher inflation mean for currencies?

We think that a return to a regime of higher and less stable inflation in many major economies would result in a rise in exchange rate volatility and, over time, the depreciation of the currencies of those countries which experience higher inflation.
Jonas Goltermann Senior Markets Economist
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CE Spotlight

The rebirth of inflation?

The debate over inflation has become polarised between those who expect a return to the 1970s and those who believe inflation is still dead. The reality is more nuanced and inflation outcomes are likely to vary between countries. A new era of higher inflation is most likely to emerge in the US and perhaps the UK. But we think inflation will remain extremely low in the euro-zone, Japan and China. In those countries where we anticipate a sustained rise in inflation, the most likely outcome is that it increases to moderately higher rates of 3-4%. But risks are generally skewed to the upside and there is a real possibility that inflation increases to a much higher rate that would, in time, necessitate a more substantial tightening of policy.

30 September 2021

CE Spotlight

What would an era of higher inflation mean for markets?

We expect underlying inflation in the US to be significantly higher over the next decade on average than it has been over the last one. Nonetheless, we don’t think that it will climb sharply from here, or that it will coincide with much weaker economic growth or tighter monetary policy. So, in our view, markets will not falter in the way that they did during some periods of high inflation in the past.

29 September 2021

CE Spotlight

Will US-China decoupling be inflationary?

China’s integration into the global economy contributed to the low inflation environment of recent decades. But it was not the major driver and, in any case, China’s integration peaked several years ago. Decoupling may be inflationary, but as long as it happened gradually, the impact would be small. Abrupt decoupling in key sectors would be a different story, sending prices soaring until new supply chains could be formed.

28 September 2021

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FX Markets Weekly Wrap

Hawkish Fed & China risks point to a stronger dollar

In a choppy week dominated by some surprising central bank announcements and the ongoing uncertainty around China’s property sector, the US dollar continued to make some headway, especially against emerging market currencies. The FOMC delivered another hawkish message, signalling that a taper announcement is imminent and shifting its “dot plot” policy rate projections higher again. Although the dollar has not soared in the way that it did following the June FOMC meeting, US bond yields have risen sharply. We continue to think that a renewed widening of bond yield gaps in favour of the US will drive the dollar higher before long.

24 September 2021

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The curious case of the super-stable renminbi

We think that the renminbi’s period of remarkable calm will end before long, and that it will depreciate against the US dollar over the next few months. In view of the wider interest, we are also sending this FX Markets Update to clients of our China service.

24 September 2021

Capital Daily

A few more thoughts on Evergrande and its implications

Further bad news out of China about troubled property developer Evergrande over the weekend has led to a continuation of last week’s risk-off shift across financial markets today. We think three points are worth emphasising.

20 September 2021
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