Inflation, monetary policy, financial markets: this is an interesting mix now, even more so than at other times.

A little more than usual, official and not-so-official statements by central banks and central bankers are the focus of interest.

Take James Bullard, for example, who once again called for significant interest rate hikes, this time for a year-end rate of 3.5 percent, with hikes of no more than 0.5 percentage points per step.

Martin Hock

Editor in Business.

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This will not affect the American economy much and the unemployment rate will probably drop to less than 3 percent.

Such a hawkish statement by the President of the St. Louis Fed is nothing special.

Because if there's a hawk among Fed chairmen, it's James Bullard.

But of course it fits with the strong development that the dollar has been showing for about a year now.

The dollar index, which shows the US currency's external value against major partner currencies, has since risen from less than 90 to more than 100 points.

The long-term average since 1974 is 96 points.

This means that the dollar is not spectacularly strong.

that could change if the index climbs above the 103.3 point mark.

Then it would have hit a 19-year high.

And the index only needed three weeks for the most recent increase of three points.

The strength of the dollar is now causing problems for some countries.

Japan's Finance Minister Shunichi Suzuki again warned in parliament on Tuesday of the consequences of the recent devaluation of the yen.

The disadvantages of a weak yen are greater in the current situation because it causes the already high commodity prices to rise even more.

Not that this had much effect: the yen recently fell to 128.13 yen against the dollar and is thus heading for a 20-year low.

The yen had already overcome the 19-year low from 2015 a few days ago.

In contrast to the euro, which has been gradually depreciating since the beginning of 2021, the depreciation of the yen has accelerated in recent weeks.

While the dollar has gained around 15 percent against the euro since then, it is now 25 percent against the yen.

One of the main reasons for this is the interest rate differential, and more recently the differences in central bank policy.

Even if you don't have to take James Bullard as a benchmark, the US Federal Reserve has clearly turned away from its lax monetary policy and will noticeably raise interest rates this year.

The Bank of Japan, on the other hand, does not want to give up its extremely loose monetary policy, while the European Central Bank is pursuing a rather volatile course.

All this benefits the dollar.

But not only that: in times of great uncertainty like the current one, there is always a flight into the dollar, not least because American investors tend to reduce their foreign currency investments.

Growth figures from China, which turned out to be higher than expected, are apparently not attracting them at the moment.

Especially since these were not as positive as they seemed at first glance.

The economy grew by 4.8 percent in the first quarter.

However, retail sales fell 3.5 percent in March, twice as much as expected, while unemployment, at 5.8 percent, was the highest in almost two years.

The leadership promised to catch up on lost growth and to support companies affected by the zero-Covid strategy.

Above all, however, the financial markets are currently looking less at the growth figures than at the interest rates of the Bank of China, which has just lowered the minimum reserve requirements, but not the interest rates.

However, comparatively high interest rates are particularly detrimental to the real estate industry, which is already badly hit.

Another thing that is now benefiting the dollar is the boost in commodity prices.

Corn and soybean prices in the US futures markets are on the verge of surpassing their 2012 highs and thus close to all-time highs, which in this case means the highest prices since at least 1959. But since commodities are traded in dollars, increased this too the demand for dollars.

As for central banks, they are in a bind, says Jeffrey Halley, senior market analyst for Asia-Pacific at foreign exchange specialist OANDA.

they could either raise interest rates and risk a recession, which might even be the less dire option.

Alternatively, they could keep stoking inflation and hope this doesn't trigger social unrest.

The US and other Anglo-Saxon countries likely chose the former, while Europe and Asia tended to choose the latter.

The poor countries in between would suffer the most.