Looking at September’s inflation data, there must be considerable confusion at the European Central Bank. Depending on where one looks, arguments can be made for both a decrease and an increase in interest rates. In the backdrop, we see a move that could be the beginning of a correction on the dollar.
Price Changes in Europe
We are currently in the midst of a large package of inflation indicator publications in important European economies. September was definitely not a boring month in this regard. Price increases in Spain accelerated as expected from 2.6% to 3.5%. For reference, prices in the Iberian Peninsula were rising only at 1.9% in June. This shows that the victory over inflation was declared too early. On the other hand, Germany’s inflation for September fell from 6.1% to 4.5%. The last time prices rose so slowly over the Oder was in October 2021. It is worth adding today’s early reading from France, where, despite expectations of increased inflation, it remained at 4.9% year-on-year. This shows that the three largest economies in the Eurozone are in three completely different situations. We had strong increases in one, steep decreases in the other, and France, which lies in between, experienced stabilization. The ECB has a big challenge ahead to conduct monetary policy in this situation.
A correction on the dollar?
Yesterday, we witnessed something that can slowly start to be called a correction on the major currency pair. After such severe strength in the US currency, it is unsurprising that dollar rates are rebounding against other currencies. Investors must realize their profits at some point. Looking at yesterday’s data, some analysts suspect that it was rather a desire to close positions before the close of the quarter, which takes place in the markets today. Unless we assume that the reasons for the markdown were data from the USA. Annualized GDP expected and second in a row very low result of unemployment benefits applications are not data that under normal circumstances can cause investors to decide to withdraw from the dollar.
U.S. Government Bonds
The yield on ten-year U.S. Treasury bonds is now at its highest since 2007. This of course relates to high interest rates, but primarily shows the large return investors expect when lending money to the government. These data show that we can forget about low interest rates across the ocean in the near future. The 10-year bonds, in fact, indicate the expectation of how much money investors want to receive in return for holding a security with a redemption date a decade away. Such high profitability should theoretically favor speculation about further interest rate increases. The odds of increases, however, are falling.
Today in the macroeconomic data calendar, it is worth noting:
11:00 – Italy – consumer inflation,
14:30 – USA – Americans’ income and expenditure,
16:00 – USA – University of Michigan report.
Maciej Przygórzewski – chief analyst at InternetowyKantor.pl
