Rising Interest Rates, Stronger US Dollar Hit World Economy

Rising Interest Rates, Stronger US Dollar Hit World Economy

Rising interest rates and a stronger dollar have impacted the global economy as countries battle worsening inflation rates, as market conditions raised downside risk for frontier markets with higher debt levels.

The Federal Reserve continues to act aggressively on interest rates, pushing the US dollar to historically high levels against several Fitch20 (twenty most advanced and emerging economies) currencies, according to a recent report.

Given that other central banks are also tightening in response to rising inflation, government bond yields are rising to levels not seen in years, as highlighted in the latest Fitch Ratings’ ‘20/20 Vision’ chart pack, the report added.

It is noted that many Fitch20 currencies including the euro, the Japanese yen, the British pound, the Australian dollar, the Canadian dollar, the Chinese Yuan and many other emerging market currencies have lost ground against the US dollar.

The latest Fed move saw the central bank raise its upper limit target rate by 75 basis points in September to 3.25%, the highest level in almost 15 years. READ:Dollar Trades Stronger Ahead of FOMC Minutes

Given rising annual inflation rates elsewhere, central banks in the Eurozone, the UK, Switzerland, Australia, Canada, India, Indonesia, Mexico, Poland and South Africa have also raised interest rates decisively.

“Underlying factors driving inflation continue to linger and CPI annual inflation rates remain elevated and well above central banks’ targets.

Global financing conditions have tightened even further and government 10-year bond yields increased significantly in many major economies including the US, Germany, France, Italy, Spain, Switzerland, Australia, Korea and Indonesia.  The UK has seen particularly rapid increase in 10-year gilt yields in recent months.

# Rising Interest Rates, Stronger US Dollar Hit World Economy#