Euro is not weak, the dollar is strong
2022.11.28 12:11
Euro is not weak, the dollar is strong
Budrigannews.com – On Monday, Christine Lagarde, the head of the European Central Bank, issued a warning that inflation has not yet reached its peak and left open the possibility of further aggressive interest rate increases, even as the economy of the Eurozone is in reversal. This caused the euro to weaken.
By 11 a.m. Eastern Time (ET)The was unable to maintain gains from earlier in the day, falling 0.1% to $1.0389.
In her regular testimony to the European Parliament, Lagarde stated, “We do not see the components or the direction that would lead me to believe that we’ve reached peak inflation and that it is going to decline in short order.”
“Whenever I ask my top-notch economists at the ECB… about the risk, the answer that I get at the moment is (that) risk is (that) to the upside, without qualifying the upside,” she continued.
There have been indications from a number of ECB officials, including the hawkish head of the Deutsche Bundesbank, Joachim Nagel, that the next rate increase may be smaller than the previous two moves of 75 basis points.
The obvious slowdown in the economy of the Eurozone has made it more likely that if the central bank tightens policy too much, it could send the region into a recession.Nevertheless, despite reaching a euro-era high of 10.6% in October, the ECB maintains some of the lowest interest rates in the world.
The European Central Bank (ECB) released data earlier on Monday that indicated that consumers are able to save less as a result of inflation. The data showed that new lending to households and businesses decreased in October, and that household deposits in the financial system also increased at their slowest rate since the outbreak of the pandemic.
Lagarde mentioned pressures from accumulated demand that has percolated throughout the economy this year as COVID-19 restrictions have been lifted in response to other questions. She said that the bank may need to raise interest rates to a level that would actively slow the economy.She also said that when the bank’s governing council meets again in December, it will decide on the key principles for cutting its balance sheet.
In addition, Lagarde appeared to have a more pessimistic perspective on the current wage developments than the chief economist of the bank, Philip Lane. Lane characterized the recent rash of stronger collective wage settlements in the Eurozone as essentially a one-time “catching up” with inflation rather than a catalyst for a wage-price spiral that lasted for a longer period of time.
“Strong labor markets…are likely to support higher wages,” Lagarde stated, adding, “We will continue to assess their implications.” “Incoming data suggest that wages are picking up.”
In addition, Lagarde cautioned governments against being overly generous in their efforts to assist the economy through what is likely to be a challenging winter marked by rising unemployment and skyrocketing energy costs.
She argued that financial assistance “should therefore be targeted, tailored, and temporary.”It ought to be targeted in such a way that the amount of the financial boost is constrained and reaches those who require it the most;tailored so as not to weaken the incentives to reduce energy use;and brief, so that the financial impulse is not sustained for longer than absolutely necessary.”
