Why Are US Dollars Appreciating

Jul 15, 2022

By The Small Exchange

Overview

Inflation measures the cost of goods and services, and it usually rises at the expense of currency values; that is, if inflation is on the rise in a given region, that region's currency is most likely depreciating. This flies in the face of recent US dollar price action showing USD to be at multi-decade highs against euro, yen, and more as the Consumer Price Index (CPI) prints its highest values since 1981.

Frank and Mikey describe how inflation can also affect interest rates, and, if one region hikes their rates higher than another, then that region can actually see its currency appreciate during high inflation. That seems to be the current story for USD as the US interest rate environment is the highest of any major economy - USD is the flight to quality.

Contents

0:05 Why Are US Dollars Appreciating?

0:50 US Inflation is its Highest in Over 40 Years

1:10 The Traditional Inflation & Dollar Relationship

1:40 US Dollar Just Made 20-Year Highs

3:10 US Rates are Also on the Rise

4:05 The Traditional Inflation & Interest Rate Relationship

5:20 Forex is a Game of Relativity

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