Is inflation truly under control, or are central banks merely pausing interest rate hikes to prevent a recession? In a context where\u00a0volatility and inflation<\/strong><\/a>\u00a0Is inflation truly under control, or are central banks merely pausing interest rate hikes to prevent a recession? In a context where<\/p>\r\n\r\n\r\n The IMF, in its recent meeting, expressed concerns about inflation and the level of debt accumulated by governments, along with the rising cost of servicing this debt in a high-interest rate environment. The U.S. 10-year Treasury yield is at its highest level since 2008. This trend is not isolated\u2014many other governments are experiencing rapidly increasing rates and high debt burdens.<\/p>\r\n\r\n\r\n Some major players in China have already had to reschedule interest payments and debt repayments. With mortgage rates rising by several percentage points, how will consumer purchasing power and spending be affected?<\/p>\r\n\r\n\r\n Ongoing geopolitical tensions, particularly in Ukraine and the Middle East, add another layer of volatility to the markets, directly impacting global supply chains and exchange rates.<\/p>\r\n\r\n\r\n Exchange rates are inherently unpredictable, but in this environment, it is even clearer that basing business decisions on currency predictions is a risky approach. At best, forecasts can serve as a starting point for exchange rate scenarios in D-Risk FX or as a discussion point with our team to help mitigate risks in your international business operations.<\/p>\r\n\r\n\r\n The upward cycle of central bank interest rate hikes is nearing its end. Higher U.S. interest rates and the U.S. dollar\u2019s safe-haven status have strengthened it against almost all other currencies in the third quarter.<\/p>\r\n\r\n\r\n\r\n Throughout the last quarter, the foreign exchange market attempted to anticipate the level at which central banks would consider their efforts to curb inflation sufficient.<\/p>\r\n\r\n\r\n\r\n In fact, EUR\/USD declined steadily with minimal fluctuations over the quarter (from 1 EUR = 1.09 USD to 1.057 USD). The British pound followed a similar slow downward trend (from 1 GBP = 1.31 USD to 1.21 USD).<\/p>\r\n\r\n\r\n\r\n The Canadian dollar (CAD) also followed this path but with more fluctuations (from 1 CAD = 0.76 USD to 0.73 USD), while the Mexican peso (MXN) moved from 1 USD = 16.5 MXN to 18.25 MXN. In Asia, the Japanese yen also depreciated against the USD (from 1 JPY = 0.00725 USD to 0.0066 USD).<\/p>\r\n\r\n\r\n With the exception of the European Central Bank, which raised its benchmark rate to 4.5%, the Bank of England (5.25%), the U.S. Federal Reserve (5.5%), and the Bank of Canada (5.25%) all held their rates steady at their last respective meetings.<\/p>\r\n\r\n\r\n\r\n Upcoming central bank meetings and the release of key economic data will be closely scrutinized and could quickly alter this status quo.<\/p>\r\n\r\n\r\n\r\n Recently, following rising consumer prices, the Bank of Japan surprised markets by raising the cap on 10-year bond yields from 0.25% to 0.5%. Mortgage rates have increased, reflecting a shift away from the Bank of Japan\u2019s historically accommodative policy.<\/p>\r\n\r\n\r\n Germany has seen its inflation drop below 6% for the first time since Russia\u2019s invasion of Ukraine. Italy and France remain around 5%. Overall, inflation in Europe has declined from over 10% to nearly 4% over the past 12 months. Inflation in the UK has also fallen, from over 11% to 6.7%, though it remains the highest in Europe and is declining more slowly than in neighboring countries.<\/p>\r\n\r\n\r\n In the U.S., inflation (3.7%) slightly accelerated alongside increased consumer spending at the end of Q3, though core inflation (excluding food and energy) showed a slight decline. The Fed projects a return to its 2% inflation target in the coming months.<\/p>\r\n\r\n\r\n\r\n In Canada, after rising from 2.8% in June to 4% in August, inflation eased to 3.8% in September. This decline follows the Bank of Canada\u2019s rate-hiking cycle, which is expected to continue its quantitative tightening policy.<\/p>\r\n\r\n\r\n\r\n However, current levels remain two to three times higher than most central banks\u2019 2% target, making further rate hikes a possibility.<\/p>\r\n\r\n\r\n The U.S. economy remains stronger than expected, while China\u2019s economy is weaker than anticipated. European growth has slowed further. Globally, inflation is declining as supply chain bottlenecks ease and higher interest rates dampen demand, reducing price pressures.<\/p>\r\n\r\n\r\n Central banks will closely monitor inflation persistence. If inflation does not continue to decline, further interest rate hikes may be necessary. So far, the global economy has absorbed previous rate hikes without showing severe signs of slowdown. If this latest round of hikes is sufficient, a \u201csoft landing\u201d scenario becomes plausible. However, if inflation remains sticky and rates rise again, economic resilience will be put to the test in the coming months.<\/p>\r\n\r\n\r\n\r\n While recent economic data has been positive, the recent outbreak of violence in the Middle East poses downside risks to growth and a strong upside risk to inflation.<\/p>\r\n\r\n\r\n\r\n See also the article:\u00a0Volatility and Inflation: Impact on Financial Markets<\/a><\/p>\r\n\r\n\r\n\r\n For more insights on managing your business in a high-interest-rate environment, check out this article from the Bank of Canada:\u00a0How higher interest rates affect inflation\u00a0<\/a><\/p>\r\n\r\n\r\n\r\n Growing your business internationally drives growth but also exposes SMEs to risks. Tracking how exchange rates affect performance is no easy task.<\/p>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nRapid Increases in Interest Rates, Inflation, and Public Debt<\/h2>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nThe Impact of Interest Rates on Real Estate<\/h3>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nGeopolitical Context and International Tensions<\/h3>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nExchange Rate Forecasts and Volatility<\/h3>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nThe Safe Haven Effect<\/h3>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nThe Role of Central Banks<\/h3>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nVolatility and Inflation: Is Inflation Truly Under Control?<\/h2>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nOutlook for the United States and Canada<\/h3>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nThe Economic Perspective<\/h2>\r\n\r\n\r\n\r\n
\r\n\r\n\r\nUpcoming Challenges<\/h3>\r\n\r\n\r\n\r\n
International Markets: A World of Opportunities<\/h2>\r\n\r\n\r\n\r\n