US: Market's increase is still damaging major world currencies

RIYADH: Since the 1980s, the US Federal Reserve has aggressively raised interest rates, pushing many currencies to record lows. The US Federal Reserve on September 21 raised short-term interest rates by 75 basis points, or 3 to 3.25 percent.

Since the announcement, many investors have moved money from other markets to invest in the US, causing volatility in the world's financial markets.

The Chinese onshore yuan is falling 10.9 per cent to 7.2 per dollar from the same period last year, according to Reuters data, while the People's Bank of China is creating barriers to the currency's security.

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On September 26, the Indian rupee hit an all-time low of 81.67 against the US dollar, a decline of 8.7% year-on-year.

The British pound began to decline shortly after the Fed raised interest rates; It had hit an all-time low on September 26 before recovering. The tax cuts of the new Lis Truss administration are another factor in the collapse of the British pound.

The pound fell on Monday to $1.0327, breaking the previous record low set in 1985, before partially regaining some of its value. Pakistani rupee also fell sharply after Fed rate hike; One US Dollar is now equal to 233.79 Pakistani Rupee.

The Australian dollar and the Egyptian pound both experienced year-on-year declines of 19.5 and 11.1 per cent, respectively. While waiting for the Federal Reserve to raise interest rates to between 4.50 percent and 4.75 percent, Chicago Fed Chairman Charles Evans said on Tuesday that the Fed should do so. Saudi Arabia operates under a fixed exchange rate regime with one dollar peg.

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Since June 1986, the spot dollar/rial exchange rate has remained stable at 3.75, due to the provision of dollars by the Saudi Central Bank to domestic banks to meet commercial and financial demands of the private sector.

Analysts predict that India's central bank is likely to stick to repo auctions to replenish the country's banking system rather than buy any bonds or lower the cash reserve ratio.

On Tuesday, the liquidity of India's banking system went into losses for the second time in a week. Last week, it experienced a decline for the first time in nearly 40 months.

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“RBI may decide against opting for a long-term solution in favor of holding a 14-day or 28-day term repo. Vijay Sharma, senior executive vice president, PNB Gilts said they may not be in favor of reducing the cash reserve ratio or making direct purchases in the open market.

"OMOs (Open Market Operations) are anticipated by some, but I disagree with that view. They may continue to use term repo for the next two to three months."

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