The Global Financial Crisis has left some observers concerned that the American and Canadian Dollar may suffer the same fate as the Mexican Peso. At present, the Mexican Peso is only trading at its medium strength level. As such, a downward pressure may be exerted on the Mexican Peso if the US Federal Reserve moves to raise interest rates.
In addition, central banks in Japan and China are also tightening their monetary policies, with the latter announcing a reduction in the interest rate. Japan and China are two of the largest economies in the world, and their current monetary policies are expected to have a major impact on the US economy. According to the analysts, a conflation is the single most important indicator that indicates the change in the US economy and will enable them to predict when the Federal Reserve will make the decision to raise interest rates.
Central banks in the United States are continuing with their efforts to stimulate the US economy. While monetary policy in the United States is likely to remain very accommodative, the increase in the rate of interest should provide an opportunity for the Federal Reserve to justify its rate hike, particularly given the fact that recent data indicate a decline in inflation.
In addition, as inflationary pressures reduce, many investors may start to feel more comfortable about buying assets that are considered to be safe and can yield higher returns. Despite the doubts expressed by some analysts, it is clear that the US economy is facing a tough challenge, and it may take time for the situation to improve.
In view of the severity of the global financial crisis, the central banks are only partially successful in meeting their stimulus program. It is expected that the Federal Reserve is preparing to tighten the monetary policy in order to overcome its current problems.
A recent fall in the exchange rate should not affect the current status of the US economy. In spite of the uncertainty created by the events in Europe, most analysts agree that the US economy is stable. In the end, the American dollar should maintain its performance and continue to move higher.
The drop in the foreign exchange rates may prove to be quite beneficial for investors. It will help them make profits when buying assets from abroad. It will also enable them to invest in the Mexican Peso, which is one of the most popular currencies in the world.
However, if the Chinese and Japanese central banks follow through with their respective measures, then the situation could become more complicated. In addition, since the Federal Reserve has announced that it is planning to increase the interest rate, they could unleash a great deal of volatility on the currency markets.
Traders should consider the implications of the changes in the foreign exchange rates before making decisions to invest in the currencies of either countries. It would not be good to let the movements of the exchange rates take over their analysis.
The issue of central banks tightening their monetary policies and the resulting decrease in inflation have been among the key issues in the United States and have been discussed at great length in the media. However, the Mexican currency should not face the same problems as the Mexican Peso if it remains stable and has already moved up to the medium-strength level.
According to the analysts, the trend towards raising interest rates could backfire and will create an environment that might encourage speculative investors to hold onto their money in foreign exchange rates, thereby causing a double dip recession. The initial rush could lead to sharp losses, but it is also possible that the changes could lead to increased foreign investments.
In a note to clients, economist Michaelsamuel-zagat says: “A higher interest rate in the United States or in any other central country may not create the high inflation that will lead to high inflation and yet it can cause significant damage to the economy, especially in the context of the severe global financial crisis. Thus, the experts emphasize that domestic central banks should retain a relatively soft interest rate and should be prepared to tighten them in the event of need.”