HOW THE RISE OF FOREIGN EXCHANGE WILL AFFECT US INVESTMENTS

On February 20th 2022,  The Bank of Jamaica’s Monetary Policy Committee (MPC) adjusted its monetary policy to combat inflation. Days before,  the MPC reported that Inflation has accelerated and is significantly above target. Inflation at January 2022 of 9.7 percent remained above the upper limit of the Bank’s target range and this breach is projected to continue over the next 10 to 12 months.

So how will that affect long term investments for those trading in the US market?

Eugene Stanley, VP of Fixed Income & Foreign Exchange, of Sterling Asset Management, discusses his insights on the rise of foreign exchange rates and BOJ’s monetary policy. Sterling Asset Management is a full-service financial planner, fund manager and global securities trader focused primarily on US dollar fixed income securities. The company partners with large brokerages to connect investors with the global capital market, providing attractive returns for medium to long-term investments, including Global US$ Bonds and Mutual Funds.

Mr Stanley cited, “As it relates to how the inflation situation is in Jamaica, the rate continues to be above the bank’s upper limit. As to how that will affect an investor in the US, I am not particularly convinced that will make much of a difference. The truth is the US, like many other global countries and markets, are also dealing with the rise in inflation. Other central banks are also taking steps to increase their rates to try and curb inflation. So what that translates into is higher yields on US dollar assets.  It’s also happening here where we are seeing higher yields on Jamaican dollar assets as the central bank has been forced to increase its policy rate to address the inflation situation.”

“As of last week, the BOJ would have accelerated their pace of hiking – they increased their policy rate by 150 basis points to take their signal rate to 4.0 percent, but given that the Jamaican authorities are still targeting inflation between the region of say 4.0 to 6.0 percent, the US is targeting inflation around 2.0 percent, and what that translates into for investors is that one can expect that the value of the Jamaican dollar, given the inflation differential, is expected to depreciate on an annual basis between 2.0 to 4.0 percent.”

The stronger BOJ measures are also aimed at addressing Jamaican dollar liquidity expansion and maintaining stability in the foreign exchange market. 

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