Forex
The US dollar index, a measure of the performance of the greenback versus a basket of other major currencies, remains very close to a two-decade maximum during early Thursday trading. Dollar demand continues to rise, especially after yesterday’s release of US inflation numbers, which came up at 9.1%, reaching the highest level in four decades. The higher-than-expected inflation figures will be seen as a vindication of the Federal Reserve’s hawkish stance, and may even increase the central bank’s drive to halt the rise in consumer prices. With a 75bp rate hike in July already baked into the value of the dollar, the question now is: could the Fed go even further and raise rates by a full percentage point? If this narrative continues to gain traction in the markets then it can be assumed that the dollar’s rally won’t run out of steam before it reaches new multi-decade highs. Against this background, the Euro continues to languish, having briefly fallen below parity with the dollar on Wednesday. The war in Ukraine continues to weigh on the single currency, and may lead to serious energy shortages next winter: a scenario that will be very penalizing for the economic performance of the region and could trigger further euro weakness, which in turn aggravates the inflationary pressure and leaves the ECB in an increasingly difficult situation. The European central bank knows that any action to curb inflation will hurt economic growth, while doing nothing means allowing inflation to rise and more euro weakness. Tough times ahead for the single currency.
Ricardo Evangelista – Senior Analyst, ActivTrades
