How economic cycles affect currency moves

CURRENCIES

Insight's Dale Thomas describes four major economic cycles in financial markets and how they influence future currency moves.

1. Global inventory cycle The global inventory cycle can be defined as the fluctuation of global GDP growth caused by either the accumulation or selling of company inventories. As stocks tend to be accumulated in good times and production reduced in bad times, the inventory cycle tends to amplify the existing economic cycle. As figure 1 shows, the inventory cycle is currently in an upswing, which tends to boost commodity prices and create inflation pressures in economies where supply is constrained. The currencies of commodity producers are the likely beneficiaries of this scenario, he...