Investors continue to closely monitor economic data and assess how it could affect the trajectory of central banks’ monetary policy. Global investors have already partly learned from the recent lower-than-expected consumer and wholesale inflation risks in the United States, fueling bets that the Federal Reserve (Fed) will have to slow its aggressive rate hikes. As a result of this, according to analysts, there was a significant drop in the exchange value of the US dollar (USD).
On 22 November 2022 at 7:28 am CET, according to the US Dollar Currency Index (DXY), which compares the value of the USD with the other six major of world currencies, we saw the USD at a price level of 107.68 with a daily decrease of -0.14%. However, the year-to-date DXY index still show a positive percentage difference, as it is currently up by +12.12% over the past 52 weeks. At the time mentioned, the global currency pair of the single European currency euro (EUR) and the dollar traded at US$ 1.025 per EUR with the daily strengthening of the EUR by + 0.05% against the USD.
According to analysts and financial strategists, European markets are currently heading for a so-called “open Tuesday”, as investors in the region appear to be shrugging their shoulders between their US and Asia-Pacific counterparts over China’s tightening of Covid restrictions, which continue to pressure production. With the revival of European markets and the potentially possible growth of the exchange value of the EUR, the fact that financial strategists and economists are predicting a faster rate of decline in inflation, Morgan Stanley’s chief US Equity Strategist Mike Wilson said that he expects “the inflation rate will fall steeply” and predicts it could happen soon. However, at the same time, Mr. Wilson says there will still be sectors where this drop in inflation may be minimal or even a milder increase. At the same time, according to other experts on the financial market, it can be assumed that this rate of inflation decline will be different in EU countries, and countries outside the euro area may have to deal with higher inflation for longer. There is a significant assumption that precisely in these countries the decline will not reach the original level, but will remain slightly higher.
However, according to financial strategists, investors and traders regarding the EUR and investment instruments denominated in euro are now carefully awaiting the decision of the central bank – European Central Bank (ECB) – regarding the further tightening of monetary policy in connection with the main financial instrument of the central bankers – namely interest rates. The Governing Council of the ECB has already raised interest rates several times this year after the previous long years of stagnation, which are now higher in the euro area in the case of a benchmark interest rate of 2% p.a. and the deposit rate, which was negative for several years, is now 1.50% p.a. This recent interest rate hike was the ECB’s response to record-high inflation in the euro area, which has already reached 10.6% in October 2022. In this context, Ms. Christine Lagarde, President of the ECB, said at the European Banking Congress on 18 November: “Inflation in the euro area is too high having reached double digits in October for the first time since the start of the monetary union. And with inflation likely to remain high for an extended period, we need to monitor the evolution of inflation expectations very carefully”.