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Global Economy: US dollar rises amid fears of global slowdown

Pound took a massive beating as US dollar rose to a 37 year high. Global economy is facing a typical "ceiling effect".



Quoting FT's technical analysis:

With UK rates set to decline and US rates possibly rising, sterling only has further to fall. If the pound fails to stop its descent at $1.80, its drop could easily extend to $1.70.

Then there are fundamentals, those elusive forces that are supposed to guide long-term currency values. The key metric here is purchasing power parity. This is the idea that, after adjusting for exchange rates, an identical good will cost the same wherever you are. Here the prognosis is even more gloomy. Take the Big Mac, a yardstick of fair value popularised by the Economist magazine. Even after taking into account sterling’s recent fall, a burger still costs $3.57 in Chicago against $4.26 in London. To bring those prices into balance, sterling needs to fall to $1.56.


It is not far that ECB will be forced to cut the rates sooner than expected.

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