Fao of TJH290633 & Flint
The standard media view is that any rise in interest rates will cause the currency of the nation raising rates to strengthen.
So if we look at the relation of say the Japanese Yen and the Euro to the $ we should expect after the recent Fed’s triple raise that the $ will have strengthened against both.
This chart shows the US$ v the Eurohttps://twitter.com/0_ody/status/845407577953447937
This shows the US$ v the Japanese Yenhttps://twitter.com/0_ody/status/845407401708806144
For the Euro there has been little change in the US $ even after the 3 rate hikes and all the political problems in Europe. For the Japanese Yen the $ has fallen despite the rate rises.
One can argue that these charts are not reflections of US rates, but of issues in Europe and Japan, but however you argue you can’t say that rising US interest rates are causing the $ to appreciate against two of its major trading blocks.
So the question comes down to is there a correlation between raising rates and currency strength. Most folk will tell you there is, but the data so far isn’t agreeing. The calculus of inter market relations is complicated and subject to many variables, but the oft quoted argument of raising rates equals currency appreciation is, at least for now, not correct as regards the US $.
Later in the economic cycle when the Fed will be fighting inflation there is more likelihood of raising rates raising the $, but for now?
Disciples of monetary theory, one of the most vocal is Mike Norman who writes on the Real Money (sub site) argue that conventional thought is wrong and that raising rates will cause currencies to weaken (at least at the start of the cycle) for the reason that rising rates puts more money into the economy, leading to inflation and to the devaluing of the future worth of the currency. i.e. raising rates is a reason to sell the $, not a reason to buy it.
It is very hard to go against what the media say and many false things get near religious fans, but it is often by going against consensus that good money is made.