Despite the Eurozone’s recent slide, its currency has been on a red hot streak. This week, the euro gained 2.1%. But, it has been a much better week than the US. This week’s ISM Manufacturing PMI in the United States showed a worse print than expected. This, in turn, weighed on the dollar.
In fact, this week’s US CPI data showed a better than expected increase. This, in turn, fueled optimism that the US central bank would follow suit with a rate hike. And, it helped to boost US stocks. And, the US Fed did indeed raise rates by 0.75% last week.
Meanwhile, the ECB has increased its commitment to rate hikes, announcing that it will increase interest rates by 25bps at its July meeting. And, it has signaled that the eight-year era of negative interest rates will come to an end by the end of the year. Nevertheless, inflation in the euro area remains too high, and the ECB is unable to stop it.
This week’s US data has fueled speculation that the US Federal Reserve will hike rates by 50bps in December. This would be a small hike, but it is still a move. The euro has also been weighed down by fears about economic damage from the war in Ukraine. In addition, the European energy crisis has hurt growth prospects in the region.
While the US economy remains strong, its labor market is tight and its inflation is running high. This has led many investors to look for a “safe heaven” investment in the US. But, this hasn’t been the case since the European Sovereign Debt Crisis. Nevertheless, this hasn’t stopped a small contingent of investors from buying the dollar as a safe haven.
Earlier in the week, the euro fell below the dollar for the first time in nearly two decades. The euro was last seen below $1.00 in December 2002. The euro has sunk nearly 12 percent this year, a steep drop for a currency that has been more or less worth more than the dollar since the euro’s launch in 1999.
Nonetheless, a weak euro will add to inflationary pressures in the euro zone. Moreover, the euro’s recent drop has added to worries about a recession in the euro zone. It has also boosted the cost of imports in the euro zone. Moreover, it has increased the likelihood that the euro will trade below parity with the dollar.
The euro’s recent decline has come as the dollar has gained against the euro and other major currencies. This has made the euro a less attractive currency for international investors. These investors are looking for a higher return on their currency holdings. But, despite this, the euro still remains a resilient currency. It’s still well worth a look.
The US Dollar Index (DXY) has also made a long-term high in the past week. It has reached a near two-year high against a basket of peers. And, it has also broken the “parity” barrier.