FX.co ★ Fed’s rate hikes affect global companies

The financial world is gripped by the issue of possible key rate cuts. This problem is very important. Heads of central banks in different countries are closely following the Fed's actions related to a possible rate cut. There is no wonder, as the performance of the US economy affects global financial markets. All countries, from the UK to Brazil, are united by economic issues, and any disruption impacts the entire chain.

Previously, there was the idea that each country determined its monetary policy regardless of the Fed's stance. In fact, many countries depend on the decisions made by the Federal Reserve. Meanwhile, global financial conditions have worsened due to the rising likelihood of a negative scenario, which suggests that the Fed's interest rate will remain high for a long time as the US has not coped with inflation yet.

Under the current conditions, the US dollar has soared, while other currencies have sagged noticeably. As a result, the probability of currency interventions in a number of countries, primarily in Asian ones, has increased many times.

Surging inflation in the US affected general interest rate expectations. This, in turn, worsened global financial sentiment. For example, central banks in Latin America postponed their plans to cut rates indefinitely. At the same time, some countries fear new obstacles to easing financial conditions.

The situation was aggravated by the dollar's 4.75% appreciation against a basket of six major currencies. In 2024, the greenback advanced by 9.6% against the yen and 6.5% against the South Korean won. Notably, South Korea and Japan are major trading partners of the US. As a result, financial conditions in these regions have deteriorated, and problems have arisen in the course of mutual trade. Nevertheless, these Asian countries have been quite successful in coping with economic challenges.