Explain why the news of higher inflation rate

Reference no: EM133711077

Question: On 11 April 2024, the Reuters's news article "US dollar surges vs yen to highest since mid-1990 after hotter-than-expected inflation data" reported the following:"The dollar rose across the board on Wednesday, soaring against the Japanese yen to its highest since mid-1990, after U.S. inflation rose more than expected in March ...""Excluding the volatile food and energy components, core inflation grew 0.4% month-on-month in March, compared with expectations of a 0.3% advance.""In midday trading, the dollar index, which measures the greenback's value against six major currencies, was up 1.1% at 105.22.""The euro, meanwhile, fell 1.1% to $1.0737.""Against the yen, the dollar was last up 0.7% at 152.895 yen, having touched 152.95, the highest since mid-1990."Using the demand-supply model of exchange rate determination (including a proper demand-supply figure), explain why the news of higher inflation rate in the United States as above would lead to an immediate appreciation of the US dollar against other currencies such as yen (JPY) and euro (EUR). [Hint: Please show in the demand-supply figure the market for USD where you can pick either EUR/USD or JPY/USD as its price.]

Reference no: EM133711077

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