The U.S. Dollar is trading in tight ranges this morning following an eventful European trading session in terms of new developments.
Overview
The European Central Bank met earlier, and President Christine Lagarde will be expected to speak about the hawkish mood. ECB officials went ahead with a 75-basis interest-rate hike to their Main-Financing Rate, now at 1.25%, while the Deposit-Facility Rate also was increased 75-bps to stand at 0.75%.
The latter was in negative territory for almost a decade to keep an accommodative environment following the 2008/09 financial crisis. Meanwhile, Federal Reserve officials further signaled their commitment to bringing down inflation. The ECB is just finally meeting them in their line of thinking.Fed Chairman Jerome Powell is expected to speak later today at an event taking place at the CATO Institute from 9 AM-1 PM. Perhaps he will reiterate the points by his colleagues, but we will now need to gauge what affects markets most and where they are headed: does the Fed hawkishness still have more value to add to the dollar, or is it now priced in that they will do everything in a predictable way while now Euro has a chance for appreciation?
We, of course, root for Euro spiking as we see now a more united front in the Euro-Zone as well as EU to resiliently make it past winter to offset Russia’s exports and economy.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇓
Our Euro-centric analysis continues as we await remarks by Lagarde regarding the policy measures. ECB officials made it clear today that they expect to raise interest rates in the next several meetings. They also showed concern for inflationary growth having momentum, with new predictions of 2.3% in 2024. Meanwhile, they also agreed to foresee a bleaker economy, cutting 2023 predictions of growth from 2.1% to 0.9%.
We think the ECB, along with good data showing the region can make it past the next six months without too much of a dip, will boost Euro prospects of growth significantly. These 20+-year lows will be tested, and we feel they may become history.
GBP ⇓
Sterling continues its downward path as the U.K. figures out where it is headed with new Prime Minister Liz Truss. More importantly, leadership is working through one of the worst energy crises recorded and is warning about the need to plan for tough times as winter comers. Truss seems very determined to use fiscal policy in the form of lower taxes to boost economic activity.
Following years of Conservative economic policy doctrine, she might face challenges from people in her own party circles who wanted to go along with Boris Johnson’s more expansionary ideas, ones that need more government revenue collection. Additionally, we root for good news on the Queen after reports that her doctors are concerned over her health.
