The German manufacturing downturn deepens in October with a faster decline in both new orders and output being noted. The only consolation is that inflation pressures have cooled a little but are still staying elevated. S&P Global notes that:
“October’s PMI showed business conditions across the manufacturing sector becoming more and more difficult, with no quick turnaround in sight.
“There was further downward pressure on output levels at the start of the fourth quarter, with firms noting the influence of high energy costs and a deepening downturn in demand.
“Manufacturers are gravely concerned about the outlook for the next 12 months, with expectations having fallen to their lowest since the initial COVID wave.
“Despite the gloomy outlook, factory employment continued to show resilience. The gap between the survey’s employment and business expectations indexes is by far the widest since the latter’s inception ten years ago. Given the scarcity of available skilled staff, it seems goods producers are keen to retain what talent they already have despite worsening business conditions.
“Inflationary pressures in the manufacturing showed signs of easing in October but remained historically elevated. Falling demand for inputs and an associated easing of supply-chain constraints helped the rate of input cost inflation resume its recent decline following the brief energy-driven upturn in September. Input costs rose at the slowest rate since January 2021, but nevertheless one that has rarely been exceeded prior to this. High energy costs have prevented producer price inflation
Inflation
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
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