“A government that inflates is therefore led to try to manipulate the foreign exchange rate. When it fails, it blames internal inflation on the decline in the exchange rate, instead of acknowledging that cause and effect run the other way.”
— Milton and Rose Friedman, Free to Choose
Changes in international currency exchange rates impact asset prices. An example is oil priced in US dollars. A weaker US dollar has an uplifting influence on oil. A stronger US dollar may weigh on asset prices, making them more expensive to our overseas friends, who would buy with other currencies.
When sovereigns stick their nose in via “beggar-thy-neighbor” policy actions, economic risk is raised.
Central bankers are presently facing a daring balancing act, as they try to keep exchange rates under control and manage them to suit their propping purpose.
Keep an eye on exchange rate action for its impact on world markets and the global economy.
Warm wishes for a great weekend,