Been reading about stagflation’s impact on currency markets but struggling with the full picture.
Prices go up obviously, but what’s the other piece that makes it so problematic for central banks and trading strategies?
Jobs disappear while everything costs more. That’s the toxic combo that breaks how the economy normally works.
When stagflation starts building, I cut my position sizes way back. Volatility goes crazy but there’s no clear direction to trade. Standard fundamental analysis becomes useless since central banks can’t use their usual playbook.
It’s one of those rare times where playing defense beats trying to make money off the chaos.
Growth dies while inflation shoots up - that’s what makes stagflation brutal.
I’ve traded through some mild stagflation and it puts central banks in an impossible spot. Hike rates to crush inflation but tank growth even more, or cut rates to help the economy but fuel more inflation.
Currency pairs go completely haywire. Normal correlations fall apart because the usual policy tools just don’t work. I stopped trading major news during those periods - market reactions were totally unpredictable.
Unemployment climbs too, which piles political pressure on top of the economic chaos.
Economic output drops while inflation shoots up. That’s the deadly combo that breaks all the normal monetary policy rules.
Trading becomes a nightmare because nothing reacts the way it’s supposed to.