Inflation in its purest definition...not the current definition given in textbooks and dictionaries, is an increase in aggregate money supply. Higher prices are the result of inflation since more currency is chasing the same number of goods.
Higher interest rates, since foreigners loan America alot of money are necessary to keep their money coming here.
The US dollar has enjoyed a nice bounce since the Fed began raising rates from historic lows. USD is still down much from previous highs, but higher rates have helped.
Higher interest rates, since foreigners loan America alot of money are necessary to keep their money coming here.
The US dollar has enjoyed a nice bounce since the Fed began raising rates from historic lows. USD is still down much from previous highs, but higher rates have helped.
the usd has been gaining strenght over the past year due to one thing and one thing only...yield advantage...presently 10 yr. bill at +-4.46% with the very likely move of at least two more rate hikes by the fed....contrast the euro region and japan where rates are 2% and nearly zero...so why..because oil is seen as the culprit for inflation...however...if like today oil continues to decline and stabilize in the $50's/brl...then it is reasonable to assume inflation to once again tame itself...ergo...no more rate increases in the usa...remember the fed has termed 4-4.5% as a nuetral postion with respect to interest rates...thus foreign money as measured by TICS will decline and the currency market will begin to worry about the ability of the usa to fund the twin massive debts of the fed and trade...this will lead to a decline of the usd verusus both the euro and yen...i don't look for any significant change in exchange rates through 2005...but into 2006 the usd is likely to fall back as both the euro region and japan sustain economic growth...as well as..the euro region will see political stability with the new regime...as is japan with their recently voted prime minister...
This is very simple:
Inflation: Bad for the dollar
Increase in US interest rates: Good for the dollar
Inflation is nothing more than a result of demand. As demand rises so must the price of goods. This leads to an increase in supply. Eventually the supply outpaces demand.
Increasing the interest rates make it less desirable to borrow money because it costs more to pay it back. Therefore those pieces of paper will become in lower supply and consequently are worth more. This is the Fed's way of making supply lead demand. Communist in theory but practical in nature.
At the end of the day all the Fed is trying to do is balance out the curve and level the playing field for everyone.
Inflation: Bad for the dollar
Increase in US interest rates: Good for the dollar
Inflation is nothing more than a result of demand. As demand rises so must the price of goods. This leads to an increase in supply. Eventually the supply outpaces demand.
Increasing the interest rates make it less desirable to borrow money because it costs more to pay it back. Therefore those pieces of paper will become in lower supply and consequently are worth more. This is the Fed's way of making supply lead demand. Communist in theory but practical in nature.
At the end of the day all the Fed is trying to do is balance out the curve and level the playing field for everyone.
