Euro ever so low since the beginning of 2017: with a session low of $ 1.0515, the single currency posted values that had not been seen for over five years. Leading the latest slide was a new surge in the greenback, lashed by the now increasingly probable prospect of an acceleration of the Federal Reserve on rate hikes in response to runaway inflation.
At the next board meeting, the FOMC which will take place on May 3 and 4, the US central bank could decide on a new hike in the cost of money, but this time by 50 basis points, and some analysts, inspired by the more intransigent members of the Fed, speculate also a rise of 75 basis points. Moreover, the American central bank is on the point of also starting to reduce the size of its balance sheet, avoiding to renew part of the stocks of securities purchased in previous years when they come to maturity.
The posture of the BCE it is much less aggressive: to date the monetary institution has limited itself to deciding a slight acceleration to the phase of gradual reduction of purchases of securities, which however are currently destined to continue at least until the end of June. Only then could it proceed to raise interest rates. And on the timing of this move so far, the institution has been very vague, deliberately, only to create some confusion in recent days with statements that did not exclude a hike as early as July. Without mentioning the fact that the ECB is currently not talking about a reduction in the budget and at the end of 2024 it will not happen before the end of 2024.
Today, speaking at a conference, the president Christine Lagarde he reiterated that we in the Governing Council are fully committed to ensuring that inflation stabilizes at 2% over the medium term, which is required by our mandate.
The problem is that inflation in the euro area is at 7.5% and threatens to go further, thus exceeding four times the ECB’s target. And the speed with which other central banks in the world are moving, starting with the Fed, but also the Bank of England, highlights the caution, see the slowness, of the ECB in reacting to the high cost of living.
The choice of the Frankfurt institution obviously is not without more than sensible justifications: on several occasions, both Lagarde and the chief economist Philip Lane have pointed out that a tightening of rates now would do practically nothing on the factor that is most driving the inflation, or the rise in energy prices, while it would risk stopping an economic recovery that is at a less advanced stage than that of the USA.
And the war in Ukraine together with the sanctions against Russia, which have also targeted part of the energy supplies, has further complicated this picture, creating further pressures on prices and also volatility of the markets. And it can only fuel fears about the prospects for economic growth.
The latest slip of the euro also comes at the same time as Russia’s announcement of the stop to gas supplies to Poland and Bulgaria, which did not want to use that complex mechanism demanded by Moscow, to claim that it charges for gas in rubles. although in fact the importers make disbursements in euros or dollars using Gazprombank accounts.
The fear, hypothesized by the Financial Times, is that if the frictions with Moscow were to continue or worsen similar measures could also target Germany and Italy, at that point putting the overall eurozone economy in much more difficulty. And this could contribute to weighing on the parity of the euro.
In the evening, the shared currency partially retracts to $ 1.0566.
The next operational meeting of the Governing Council of the ECB is scheduled for June 9, traveling to the Netherlands. On that occasion, the new economic forecasts will also be published, which are usually the basis on which to make monetary policy decisions.
Source: RSS DiariodelWeb.it Economia by www.diariodelweb.it.
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