The euro has appreciated nearly 3% so far this year. The advance that allowed it to surpass $1.10, its highest level since April 2022. Analysts explain this good performance of the community currency by the growing expectations that The price differential between the United States and the eurozone will narrow this year.
And for the same reason It will favor new heights in the block currency. “While the cycle of rate hikes by the US Federal Reserve (Fed) is very close to ending, perhaps in May, the ECB still has a ways to go in its fight against inflation,” notes Itsaso Apezteguia, an Iberian analyst. .
This is what the latest picture of swells on both sides of the Atlantic shows. US Consumer Price Index (CPI) and Producer Price Index (PPI) moderate in March to 5% and 2.7% in the annual general average. It was the lowest percentage in nearly two years.
At the same time, Eurozone inflation fell to 6.9%, Compared to 8.5% in February. However, the core inflation rate – which excludes the more volatile prices of energy and fresh food – rose by a tenth to 5.7%.
Not only does this data suggest that the Federal Reserve’s aggressive pace of monetary policy tightening over the past year is working well, but It is unlikely that further interest rate increases will be required After the May meeting of the Central Bank, ”Apezteguia believes.
Another 25 basis points
In addition, the markets interpreted the minutes of the institution’s meeting chaired by Jerome Powell in March – known last week – as moderate.
The documentation states that Many Fed members considered not voting to raise interest rates last month, despite the final unanimous approval of an increase of 25 basis points. US monetary policy makers expect slight recession By the end of the year as a result of the recent banking turmoil.
[Powell defiende que la banca de EEUU está sana y garantiza las “herramientas necesarias” para su estabilidad]
If Fed members choose to raise interest rates by 25 basis points – as expected by the market – at the May meeting, it would be the third consecutive increase by the same proportion. It would raise the price of money Even the range is between 5% and 5.25%, levels not seen since 2007that is, since before the great financial crisis.
As soon as the aforementioned increase is implemented, the increases shall be stopped. This is the sentiment of the majority of investors who encourage him The continuous decline in inflation rates and the slowdown in some economic indicatorsalsomonkeys and theYes Federal Reserve members’ considerations included in the March meeting minutes.
Grandsons?
There are even investors who are starting to discount the possibility of an economic slowdown and banking tensions Push the Fed to lower interest rates later this yearsays Joaquín Robles, XTB Analyst.
Juan Jose del Valle, an analyst at Activotrade, considers this to be logical, since The Fed’s rate hike cycle is ahead of the Eurozone. In fact, since the US central bank started raising the money rate in March 2022, it has raised benchmark rates by 475 basis points.
“maybe Start reducing rates during the second half of this year In contrast to the European Central Bank or other central banks that still have high interest rates for the next few quarters, ”adds Del Valle. In the case of the institution chaired by Christine Lagarde, the cumulative rise in rates since July is 350 basis points.
This means that he still has a long way to go. “Good macroeconomic data has increased the pressure on the ECB to tighten its monetary policy at a good pace, but without a doubt, the main argument in favor of further rate hikes by the ECB is the very high core inflation facing the economy from the Eurozone,” she underlines. apezteguia.
[Lagarde (BCE) supedita las futuras subidas de tipos a que amaine la tormenta financiera]
Several ECB members spoke along similar lines last week, arguing for a continuation of the cycle of increases due to rising core inflation. Some of them even showed up New increase supporters by 50 basis points.
This is what Martins Kazak, the European Central Bank’s hawk, indicated on Monday. said the governor of the Central Bank of Latvia, who although he noted that it was “normal” that the rate of increases would be reduced, “A 50 basis point increase is not an option to ignore.”
According to Refinitiv data, the market expects the European enterprise Raise benchmark interest rates by 75 basis points through Septemberthough investors disagree on whether there will be three more increases — each of 25 basis points — or just two, one of half a point and one of a quarter.
The result, however, is the same: Increase deposit facilities – The reference interest rate for the three market held by the European Central Bank- by 3.75%. And once they’re there, they keep it for the rest of the year, According to economists surveyed Bloomberg.
$1.12
Despite the fact that the euro has fallen in the past two sessions, analysts expect the single currency’s upward trend to continue.
“The euro is piling up more than 12% in the past six months and as long as it stays above $1.1, it might You can look for the 2022 maximum with technical analysis, in areas close to 1.15Del Valle says.
Something more optimistic is Robles, who notes that “once the potential Fed pause is confirmed, The Euro may attack 1.12 again“.
Itsaso Apezteguia believes that “in the near term the euro will remain close to that level between $1.10 and $1.11, and that its development will depend almost entirely on the next rate hike from the European Central Bank.”
He sees it as very likely that the ECB will surprise the markets and raise 50 basis points, so he thinks that “There is plenty of room for the euro to rise further. And that the pair is around the level of 1.12.”
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