Therefore, in the face of a global economy in strong slowdown since the beginning of the year, due to a surge in inflation, the restrictive policies of the central banks and the Russian-Ukrainian conflict that does not seem to stop easily, the concern of investors pushes them to shift their interest towards the safe haven currency par excellence, the US dollar, accumulating liquidity. The supply shock due to the increase in production costs and the increase in inflation, slow down growth in Europe, thus leading to a weakening of the euro against the dollar.Īs for the situation of the US dollar, on the other hand, it is known that the US economy has greater levels of autonomy on the energy and raw materials front, especially natural gas. On the EU front, there is a concern about this risk and the various tactical and strategic solutions to be implemented to combat these blows to businesses and consumers are being considered, as it scares the specter of a possible stagflation. Think, for example, of the macro data published by Germany in which there is the first monthly trade deficit since 1991 due to high import costs and lower export demand.įrom the side of the financial and currency markets, this situation offers operational insights into the repositioning of financial portfolios, in view of a probable European recession that the markets already seem to be discounting and weighs on these declines, the strong and lasting pressure of gas rationing, more generally of commodity price increases. In summary, the current situation can only allow us to hypothesize an inevitable negative growth scenario. The dependence of Europe on Russian gas, in particular of Germany, has highlighted the strong difference in supplies with the rest of the world, leading to a sharp increase in energy prices and consequent greater burdens for households and industry. This article attempts to summarize the causes and effects of the current EURO/ USD exchange rate from a macroeconomic point of view.Įurope, since the beginning of the year, has been at the center of economic and geopolitical issues due to the Russia-Ukraine conflict. The ECB picture is more complex than the Fed’s tightening strategy, which is why in a moment of volatility and uncertainty the advantage for the dollar is fueled. For Europe, in particular, the supply shock is even more marked, being completely exogenous, due to therefore, the ECB’s rate hike serves to control inflation expectations against the energy shock. These interventions to attack consumption is justified by the fact that, while in cases of inflation caused by demand shocks, restrictive monetary policies (increase in interest rates) have an almost immediate effect, in the current case, on the other hand, to lower inflation levels from supply, rate increases alone cannot be enough but demand must be aligned with supply and the only way to do that is to cool the demand itself. Reducing inflation down to 2% will likely require a period of under-trend growth.” The markets did not like these utterances very much, as they awaited a more optimistic attitude, especially according to the slightly improving data recorded in July. The low probability of resolution of geopolitical tensions and the continuing uncertainties on rate increases, do nothing but favor the dollar as a currency/safe haven.įed President Jerome Powell, in a not too long speech at the Jackson Hole Economic Policy Symposium in 2022 “Reassessing Constraints on the Economy and Policy”, was very precise in reiterating his messages: “Bringing back the stability of pricing will take time and large use of our tools to balance supply and demand. The problem of these levels is also linked to the high number of speculative positions on the strengthening of the “net long” dollar, even if they have not yet reached excessive volumes. The technical analysis shows support levels to be monitored are on the EURO / USD parity and around the 0.98 area while the upside, however, the resistance levels of the 1.05 area should be observed. The New European Property Registry is Ready.What the EU Agenda foresees for the next few weeks.EU and WHO Aim for Ever Higher Digital Health Security Globally.
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