The ECB to act on rising inflation

Sep 7, 2022
  • EUR/USD0.9901
  • DOW JONES31’145
  • USD/CHF0.9845
  • SMI10785
  • EUR/CHF0.9748
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Liz Truss, the leader of the British Conservative Party became a new UK prime minister. Th...

Liz Truss, the leader of the British Conservative Party became a new UK prime minister. The pound rose yesterday morning and touched $1.1600 before returning to $1.1560.

For its part, the European Central Bank will meet on Thursday and raise interest rates between 0.5% and 0.75%.

Inflation accelerated further in the Euro area to 9.1% year-on-year. The surge in prices, which largely fueled by the rise in energy costs (+38.3% over one year), continues to put a strain on household purchasing power.

After a first rate hike that was larger than expected in July, the ECB could again accelerate the pace by announcing a 75-point increase on Thursday. It is important that the public retains confidence in the ECB's ability to preserve purchasing power," said Isabel Schnabel, an economist and member of the ECB's Executive Board. The EUR/CHF is moving around 0.9760.

The euro fell below $0.99 yesterday, hitting another low opening of 0.9876 for the first time since late 2002. The euro was hit hard by fears of energy shortages after Russia's Gazprom shut down the Nord Stream 1 pipeline.

Inflation in Turkey passed the 80% mark in August, at 80.21% year-on-year, up from 79.6% in July, the highest level since 1998. The livre, which has lost almost 40% of its value against the dollar this year, is worth $18.21 this morning. The Turkish central bank is the only central bank to lower its rates, during the time when inflation has become one of the major economic issues in the world.

The Australian central bank raised its key interest rate by 50 basis points to 2.35%. This is the fifth rate hike since May.

65 billion will be made available to German consumers to cushion the energy price shock. Inflation could reach 10% by the end of the year.

The JPY hit its lowest level since 1998 overnight against the $ at 144.38. The Japanese currency is suffering from the BOJ's monetary policy when most major central banks have all raised rates. The JPY has lost almost a quarter of its value since the beginning of the year.

Chinese exports and imports slowed sharply in August as new measures to combat the Covid epidemic were put on place. Exports grew by only 7.1% (compared to 18% in July). Imports fell (+0.3%) as a sign of the slowdown in Chinese household consumption.

Russian Gazprom announced yesterday that it had signed an agreement with China to be paid in yuan and roubles instead of dollars for its energy deliveries. In addition, new long-term gas sales contracts have been signed for the delivery of 10 billion cubic meters per year.

The European stock markets ended on a moderate rebound yesterday after a volatile session, as investors hesitated over the size of tomorrow's expected ECB rate hike and the evolving energy crisis.

Wall Street closed lower, impacted by the publication of the manufacturing index, which fueled the rise in bond yields. The Nasdaq recorded its 7th consecutive session of decline. In Asia this morning, the Nikkei gave up 0.71%

Treasuries yields rose sharply across the curve with some points rising by more than 15 bps. The 10-year Treasury note thus ended the session at 3.348%. In Europe, the market is beginning to doubt that the ECB will raise rates by 75 bps this month, given the fragile economic situation in the region. Volatility remains high and investors tense. The 10-year Bund yield opened the day at 1.618%. UK 10 year government bond crossed 3% and now at 3.07%.