April 25 (Reuters) – Many shocks over the past few years have been cushioned by stimulus, but now that the US central bank is tightening monetary policy, that cushion is gone.
Stocks, commodities and all the risky assets that investors have favored since the start of the COVID-19 pandemic are now exposed to the negative effects of the war in Ukraine and the resulting sanctions. At the same time, new coronavirus infections are dampening economic activity in China, while rising borrowing costs are expected to slow the US economy, but may not stop inflation which is already well above rate peaks. expected interest.
The surge in demand seen for commodity-linked currencies and higher-yielding (and riskier) currencies as the Russian invasion drove up commodity prices will aggravate the situation.
Currencies boosted in this way are likely to fall significantly as the risk of stagflation and recession increases, while gold and currencies considered safe – like the dollar – should get more support.
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(Jeremy Boulton is a market analyst at Reuters. Opinions expressed are his own)
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