AIRINC’s Post

How do you manipulate a currency? (without affecting inflation?) Devaluing a currency essentially means reducing its value in comparison to other currencies. Which means more inflation, because imported goods will be more expensive... This can be done through various means, often by a country's central bank or monetary authority. Here is the idea: 👉Interest Rate Policy: Lowering interest rates can decrease the attractiveness of a currency to investors, reducing demand and its value relative to other currencies. But lowering interest rates will lead to more inflation. 👉Open Market Operations: Central banks can sell their own currency in the foreign exchange market, increasing its supply and thus lowering its value. When you flood the country with more money, you create inflation. 👉Quantitative Easing: This involves the central bank buying government securities or other financial assets, injecting money into the economy and potentially reducing the value of the currency. Reducing the value of the currency is exactly the meaning of inflation. 👉Direct Intervention: In extreme cases, governments may directly intervene in currency markets by buying or selling their own currency to influence its value. That's currency manipulation. 👉Announcements and Forward Guidance: Central banks can also influence currency values through verbal intervention, such as indicating future policy directions or economic outlooks that could impact the currency's value. That's phycological warfare... However, it's essential to note that devaluing a currency can have both positive and negative consequences. While it may boost exports by making goods cheaper for foreign buyers, it will lead to higher #inflation and reduce purchasing power for domestic consumers. Therefore, policymakers must carefully consider the potential trade-offs before actively devaluing their #currency. https://lnkd.in/gtrvFJrC #devaluation #currencymanipulation #china #imports

There has been a narrowing trend of the country’s trade deficit in recent months, while global oil prices were still among two-year lows. https://lnkd.in/g6Ch8iUT

Exporters can benefit from a floating exchange rate system: Currency Appreciation: In a floating exchange rate, a country's currency can appreciate in value relative to other currencies. This is beneficial for exporters, as it makes their goods cheaper for foreign buyers, potentially increasing demand and sales. Increased Competitiveness: When a country's currency appreciates, it becomes cheaper for foreign customers to buy the country's exports. This can make the country's exports more competitive in the global market, allowing exporters to potentially increase their market share. Hedging Against Volatility: Floating exchange rates allow exporters to better hedge against currency fluctuations. Exporters can use currency hedging strategies, such as forward contracts, to lock in favorable exchange rates and mitigate the risks of adverse currency movements. Flexibility: Floating exchange rates provide more flexibility for exporters to adjust to changing market conditions. Exporters can more easily respond to shifts in global demand and supply by adjusting their pricing and production decisions. Reduced Trade Barriers: Floating exchange rates can help reduce the need for government interventions, such as tariffs and quotas, which can act as trade barriers. This can create a more open and favorable environment for exporters. However, it's important to note that the benefits of a floating exchange rate system for exporters can vary depending on the specific economic conditions and policies as well as the dynamics of the global market.

What are the potential negative impacts of increasing interest rates and inflation on global trade? Rising interest rates and inflation could negatively impact global trade in various ways, including: - Reduced Demand: When interest rates rise, borrowing becomes more expensive for businesses and consumers. This can lead to decreased spending on imports, impacting trade volumes. - Higher Import Costs: Inflation often leads to an increase in import prices. This can make foreign goods less competitive and discourage businesses from importing. - Currency Fluctuations:  Central banks raising interest rates can strengthen a country's currency. This can decrease a country's export volumes as foreign-made goods may become more attractive in terms of price. - Trade Financing Challenges: With rising interest rates, trade financing becomes more expensive, making it harder for businesses to finance international transactions. It's important to stay up-to-date on evolving economic conditions and adjust international trade strategies accordingly. #banking #internationaltrade #inflation #interstrates #globaltrade #tradefinance

Have you ever wondered why exchange rates change and how they affect global trade? Let's break it down. 1/ What Causes Exchange Rates to Change? → Exchange rates can change due to various reasons. One major factor is supply and demand. When more people want a currency, its value goes up. → Similarly, if there’s less demand, its value can drop. Economic conditions, interest rates, and political stability also influence exchange rates. 2/ Impact on International Trade Fluctuations in exchange rates can have significant effects on trade between countries: → Exporters vs. Importers: A weaker currency can benefit exporters by making their goods cheaper for foreign buyers. Conversely, importers may face higher costs. → Competitiveness: Countries with strong currencies may struggle to sell goods abroad as they become more expensive. On the other hand, a weaker currency can make a country's products more competitive globally. → Risk and Uncertainty: Rapid changes in exchange rates can create uncertainty for businesses, affecting investment and trade decisions. 3/ Strategies for Dealing with Exchange Rate Fluctuations → Businesses and governments can employ various strategies to manage risks related to exchange rate fluctuations: → Hedging: Using financial instruments like futures contracts to lock in exchange rates and reduce risk. → Diversification: Operating in multiple markets with different currencies can help balance risks. → Policy Interventions: Central banks may intervene in currency markets to stabilize exchange rates or achieve economic goals. The Bottom Line: A Balancing Act Exchange rates constantly adjust, impacting international trade. Understanding these forces can help businesses price their products competitively and consumers anticipate fluctuations when shopping internationally. #Trading #Global #MetlifeGulf

Powell, PPI, and US Tariff Announcement on China Featured: Overview: The tone in the foreign exchange market today is mostly consolidative. The two notable exceptions are the yen and yuan. Despite higher JGBs yields amid speculation that the BOJ will scale back bond purchases, as it did yesterday, to support the yen, the greenback is at its best level since the suspected intervention. The next important technical area is near JPY157.00. The US is set to announce a new set of tariffs on a wide range of Chinese goods later today. Expectations that policy is about to be eased, coupled with the yen's weakness, appears to have helped push the yuan to new seven-day lows. Softer UK labor data weighed on sterling, but it recovered after the $1.25 area held. There are GBP1 bln of options that expire there today. Most emerging market currencies are firmer but a handful of Asia Pacific currencies and the South African rand.  Equities are mixed. Outside of China, Hong Kong, and Australia, most large bourses in the Asia Pacific region edged higher. The longest rally in Europe's Stoxx 600 since October-November 2021 is being challenged today. The benchmark is flat near midday, with a seven-day advance in tow. US index futures are little changed. The 10-year JGB yield rose. It held slightly below 1%, its highest level since last November. The soft labor market report is helping UK Gilts shine, with a nearly two basis point decline in the 10-year benchmark. That is the most in Europe today, where yields are mostly softer by less than a single basis point. The 10-year US Treasury yield a little lower near 4.73%. Gold is firmer near $2346 after falling 1% yesterday. June WTI is flattish near $79. It continues to consolidate, mostly between $75 and $80 so far in May.  Asia Pacific Japan's April PPI is of little consequence. The year-over-year rate of 0.9% was unchanged from March (revised from 0.8%). The challenge in CPI, which is likely to rise as the household subsidies for energy roll-off this month and next. China set the benchmark one-year Medium-Term Lending Facility rate first thing tomorrow. It is expected to be steady at 2.5%, while the volume may increase from CNY100 bln to CNY150 bln. The focus is on yen following the recent bouts of intervention and the BOJ's decision yesterday to buy fewer JGBs. Meanwhile, reports suggest that the US could announce new steep tariffs on China's electric vehicles, and some other elements of the new economy (solar panels and batteries). The dollar pushed above JPY156 in North America yesterday. It reached JPY156.25 and follow-through buying today brought to JPY156.55, its best level since post-intervention low of about JPY151.85. While the JPY156 represented the halfway mark of the dollar's drop from nearly JPY160.20 on April 29, the (61.8%) retracement is about JPY157. The dollar's gain against the yen were recorded despite the slippage in US… http://dlvr.it/T6s7hr

🔴 SPECTER OF CAPITAL FLIGHT: TARIFFS FIRST, NEGOTIATE LATER 🔴 LITTLE DISCUSSED IS HOW the prospect of new tariffs will be managed in 2025 with a potential (R) administration. There shall be tears. ⭕UNLIKE 2016, the new plan will be to "levy first, negotiate later". Even friendlies like Canada, ANZ and EU will face a potential 10% hit. Which is why countries are scrambling to fire up bi-lateral agreements with big players. ❌ CHINA HAS BEEN MANAGING the yuan around the 7.30 target (+ or -) but here is the fly in the (exported) ointment: that band will have to drop to 8.30 to offset tariffs in order for exports to remain competitive. Maybe more. 🚫 SUCH DEVALUATION NOW buzzing on social media: savers looking to BTC etc as a way to export wealth before devaluation (and capital controls) happen. ❗THIS NEW BROOKINGS PIECE is current: quite informative. Speaking of ointment, LING NAM Ultra Balm is my choice for rapid relief of muscle and joint pain. It is the BEST [comment below]. #devaluation #currencywars #CNY #Yuan #tariffs #Election2024

Why an How Exchange Rate +/-? A nation's currency exchange rate is one of the most important determinants of its economic health. Along with interest rates and inflation rates, exchange rates play a vital role in a nation's level of trade, which is critical to nearly every free market economy in the world. For this reason, exchange rates are among the most watched and analyzed economic numbers, and among those most subject to government manipulation. A nation's currency exchange rate is one of the most important determinants of its economic health. Along with interest rates and inflation rates, exchange rates play a vital role in a nation's level of trade, which is critical to nearly every free market economy in the world. For this reason, exchange rates are among the most watched and analyzed economic numbers, and among those most subject to government manipulation. But exchange rates matter on a smaller scale as well: they impact the real return of an investor's portfolio. A higher exchange rate can be expected to damage a country's balance of trade. That is, the country is making less on its exports and spending more on its imports. A lower exchange rate can be expected to improve the balance of trade.

As we discussed yesterday, members of the public tend to react poorly to significant consumer price inflation. So how do governments respond when inflation threatens their popularity - and what impacts do these have?  Here are a few common options: 1.) Interest rate hikes. Central banks can raise interest rates, slowing lending and consumption while also strengthening a currency’s value against major currencies (such as the dollar). This helps reduce inflation, but can slow economic growth, cause debt distress, and increase unemployment. In addition, interest rate hikes take time to impact consumption, and are unhelpful for dealing with supply shocks. 2.)  Fiscal policy. Governments can raise taxes and reduce spending to help fight inflation. However, the legislative process can impose a lag time (as with rate hikes), tax hikes and spending cuts can be politically unpopular, and lower income groups can be heavily affected barring a targeted approach.  Alternatively, governments can cut excise taxes, sales taxes, or tariffs on goods experiencing particularly high inflation. 3.) Trade policy. Along with cutting tariffs, governments can curb exports for key commodities or strike bilateral trade deals with key energy or food producing countries (https://lnkd.in/gTzzFFYh). However, export curbs negatively impact producers (who may protest or reduce production), increase global prices (https://lnkd.in/gqnnhBDh), and can cause long term damage to market share in key export markets.  Meanwhile, bilateral trade deals can run into pricing disputes or geopolitical complications - Pakistan's planned gas pipeline with Iran has been stymied for years due to concerns about US sanctions (https://lnkd.in/gV26qR23.) 4.) Release reserves. Governments often maintain strategic reserves of key commodities - the United States holds oil reserves, while India retains rice and wheat reserves, and China maintains frozen pork reserves (https://lnkd.in/gsX8QJBZ).  However, strategic reserves are unlikely to cover the full range of commodities experiencing high inflation, don't directly influence goods and services inflation, and have a limited impact on prices barring broader efforts to address supply and demand issues (https://lnkd.in/gwYeVnST). These are some of the more orthodox approaches governments take when battling inflation - tomorrow, we'll discuss what happens when policymakers pivot to more unusual inflation-fighting strategies...

I'm advocating against currency devaluation in our import-dependent economy. It's crucial to weigh the pros and cons for a comprehensive analysis and debate amidst our current economic challenges. Pros of Kina Devaluation: - A weaker currency makes exports cheaper and more competitive in international markets, stimulating economic growth. - Increased export activity boosts production, employment, and income levels. - Reducing trade deficits by making imports more expensive and exports cheaper can lead to a more favorable balance of trade. - Lower currency value attracts foreign investors as assets become cheaper. - Encourages domestic consumers to buy locally produced goods, supporting domestic industries. Cons of currency devaluation: - Higher import costs can drive up prices, contributing to inflation. - Inflation and increased import costs may reduce consumer confidence and slow economic growth. - Retaliation from other countries may lead to a "currency war," destabilizing global markets. - Devaluation increases the local currency value of foreign-denominated debt, making it more expensive to service. - Short-term disruptions like market volatility, business uncertainty, and potential capital flight can occur. - Diminished value of savings in the local currency negatively impacts savers and those on fixed incomes. Currency devaluation can be a double-edge sword. While it may provide short-term economic benefits by stimulating exports and growth, it also carries significant risks, such as inflation, increased debt burden, and potential economic instability. The decision to devalue a currency should be carefully weighed, considering the broader economic context and potential long-term consequences. #CurrencyDevaluation #EconomicAnalysis