The Euro has been losing ground and now sits at its weakest point in three weeks following the frustration with the Fed’s path towards a higher interest rate than previously thought.
Overview
Central banks have been hiking rates in hopes of bringing down price levels in various regions, but it has been questioned. With the Fed’s strange position to call for a slower pace but an ultimate higher terminal rate is causing headaches for those questioning monetary policy’s ability to truly impact inflationary pressures. The truth is simply that what will need to be hurt is unemployment and demand, and once enough recessionary pressures materialize. Price increases may be here to stay, and it may take more than just central bank policy. Our November Outlook dives into this deeper.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇓
The Euro has kept its gains, for now, after a week that saw the deflation of the buck as data did not seem to match the intentions of the Fed. More importantly, this week has seen some officials raise their voices about the European Central Bank’s need to consider controlling high inflation. In particular, energy prices on the other side of the Atlantic have made it very difficult for companies to do well and political friction has complicated the effectiveness of natural gas and oil from other nations. ECB member Luis De Guindos echoed the sentiment of others in saying that the inflation being experienced may not be transitory.
GBP ⇓
The Sterling has fallen dramatically following the Bank of England’s meeting and message. Although the BOE went ahead with its expected 75-bps hike, the Pound value is plummeting by over 2.0% this morning based on the dovish message from Governor Andrew Bailey that the bank should not raise rates too far. In fact, the BOE sees a recession developing, a hurtful deep one that could be made even worse by the concept of making rates too high and hurting demand. A two-year recession is a possibility per their analysis, and their terminal rate should be lower than what is being implied by markets.
