Central banks are in the spotlight. Economists at Commerzbank analyze how their fight against inflation could impact the exchange rates.

End of rate hikes does not mean victory over inflation – yet

The market has accepted that the rate hike cycle will come to an end for now, despite the fact that inflation rates are still well above target levels in some cases. A more notable reaction of the exchange rates should only be expected once the current outlook changes, that means if inflation does not ease as expected or if the economy cools much more quickly than expected.

Only if the central banks have to react to a change in the current status quo will it become foreseeable which central bank is pursuing a properly restrictive course and which one is also keeping an eye on other factors apart from price stability – usually to the detriment of its own currency. The currencies of those central banks that are continuing the fight against inflation in a particularly credible manner are likely to benefit on a long-term basis too.

This article was originally published by the original article here.