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Analysts have argued that, inflation does have a direct impact on foreign exchange rates, but the question is, "Is the relationship direct as claimed? Further research has exhibited that sometimes the two do have an inverse relationship while other times the relation is actually direct. So how exactly does inflation impact on foreign exchange rates? Share this question |
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High inflation rates increases the the foreign exchange rates and hence weakens the local currency. This in turn reduces the purchasing power of a country whose ripple effect can only worsen the situation. It is true that sometimes the relationship between inflation and forex may be inverse, which is caused by speculation from both the buyside and sellside participants in the market. For further reading on this subject, the link below is helpful. http://trifter.com/practical-travel/the-impact-of-inflation-on-foreign-exchange-rates/
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This answer is marked "community wiki".
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I agree with Nmaithya, higher inflation means lower purchasing power. However, sometimes it is also important to see what is causing the inflation. If growth is higher than inflation than sometimes inflation and currency can move in the same direction. |
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Based on the dollars currency only, the exchange rate is really biased from the american practice in monetary using like printing money and gold and silver as guarantee! But after gold and silver, there is nothing solving the obviously problem of the world! You cannot buy fuel and biofuel and food with gold end silver! The global currency will solve this problem as influencing directly the exchange rate!!! |
