untitled design

Ebury: The euro ‘finds’ support

By Enrique Diaz – Alvarez *

The euro, along with the Swedish krona and the Swiss franc, topped the G10 currency rankings last week. The sense that we may be entering a less catastrophic phase of the Russian invasion certainly helped, as did the fall in oil prices following Biden’s announcement of massive oil sales from the US strategic stockpile in an attempt to put a brake on energy inflation.

The sharp rise in world energy prices has been a source of trouble for the euro, given the eurozone’s dependence on oil and gas imports. In this news, the Norwegian krona sold out abruptly. However, lower oil prices did not stop the emergence of emerging market currencies, once again led by Latin American currencies.

Next week, the financial data we expect is small. The focus will be on central banks’ communication messages, as both the US Federal Reserve (on Wednesday) and the European Central Bank (on Thursday) will publish the minutes of their respective March meetings.

The Federal Reserve is expected to validate the growing tightening imposed by the markets with a decisively aggressive tone. The tone of the European Central Bank’s practices is more difficult to predict, as there are voices for both restrained and bold messages, with the balance moving steadily in favor of the latter, as relentless inflationary pressures become more difficult to explain. This will be expected to work in support of the common currency.

Sterling

Last week’s headline from the UK was a positive review of fourth-quarter economic growth figures, but markets have completely ignored this now obsolete element. By contrast, the Bank of England’s apparently neutral policy stance continues to weigh on sterling, which lost ground last week to most of its counterparts. This week is also calm in the data and the focus will be on the speech of the chief economist of the Bank of England, Hew Pills, on Thursday.

Euro

The March inflation report had another spectacular surprise at 7.5%, and the main one exceeded the already high expectations, mainly due to the price increases in Spain and Germany. The key index was more modest at 3.0%, but the low weight attributed to housing prices on this index partly explains the calm.

The lower oil price, after the announcement of Biden’s strategic reserve, certainly helps the disturbed rules of the Eurozone trade, and this explains the recovery of the euro in the last days. However, a steady upward trend in the common currency should logically mean a clearer bold shift from the European Central Bank and the prevalence of a bold trend in the Bank’s internal debate. We expect to see this in the coming weeks, starting with the publication of the minutes of the ECB’s March meeting on Thursday.

US dollar

Another strong US labor market report confirms that the economy is in full swing and labor shortages in many sectors are unlikely to be resolved any time soon, which means that inflationary pressures will continue to spread, in our view. All eyes are now on the publication of the minutes of the March meeting of the Federal Reserve, which is expected to include details on the reduction of the huge holdings of bonds and mortgages by the Central Bank.

The key element will be the rate at which the Federal Reserve will allow bonds to circulate without reinvesting revenue. Anything over $ 80 billion a month would be considered too bold and could drive the dollar to a rally.

* Chief Risk Officer of the international payment company Ebury.

Source: Capital

You may also like

Get the latest

Stay Informed: Get the Latest Updates and Insights

 

Most popular