EUR/USD has reached new heights

01/11/2023

1 minute read

2023.01.11 16:07

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Kenny Fisher

On Wednesday, the euro is fluctuating at 1.0730. has increased by approximately 1% this week, reaching a high of 1.0760 on Monday, which is its highest level since June 22. Is it possible for the euro to keep rising?

The Eurozone’s inflation has returned to single digits, raising hopes that it has finally reached its peak. In December, the headline rate decreased to 9.2%, down from 10.1% in November but exceeding the forecast of 9.7%. The ECB is pleased by the slowdown. Even if inflation continues to decline in the coming months, investors shouldn’t expect the central bank to become dovish and end its current rate-tightening cycle.

Both lower energy costs and energy subsidies provided by governments in Germany and other members of the eurozone have contributed to the decline in headline inflation. increased from 5.0 percent in November to 5.2 percent in December, indicating that underlying price pressures remain strong.

Until the core rate continues to fall and wage growth slows, the ECB is unlikely to slow down its rate of inflation increases. The ECB’s message remains hawkish in the interim. In December, ECB President Lagarde stated that the markets were underestimating how high rates would rise and that the ECB was likely to continue raising rates “for some time” in 50-bp increments.

Thursday is the US release of December, and in recent months, we have seen how reports on inflation can move the equity and currency markets. Following the gain of 7.1 percent in November, the consensus for headline inflation is now 6.5 percent. The core rate is also expected to decrease, from 6.0% in November to 5.7% in December.

The markets have assumed that the Federal Reserve will not be able to keep raising interest rates in the face of falling inflation, which is why reports of soft inflation have pushed the US dollar lower in recent months. If December’s inflation numbers are lower than anticipated, I would anticipate a similar response.