"More rate hikes are needed to bring down inflation. Major rate hikes are needed," German central bank president Joachim Nagel said today at a Bundesbank symposium in Frankfurt. His statements correlate with the statements of other representatives of the ECB that a tighter monetary policy is needed. "We will start quantitative tightening sooner or later, probably in 2023," Luis de Guindos, Vice President of the European Central Bank, said today, adding some "pepper" to the hawkish statements of his colleagues.
ECB Governing Council member and French central bank president Francois Villeroy de Galhau said, "Until core inflation has reached a clear peak, we should not stop raising rates." In his opinion, the return to the target level (inflation, i.e. 2%) will take two to three years.
Earlier on Friday, European Central Bank President Christine Lagarde also said she would not allow high inflation to take hold. "We need to raise rates to a level that will meet our medium-term inflation target of 2%," Lagarde said.
Given hawkish statements by ECB officials and a sharp weakening of the dollar after the publication of the November report of the US Department of Labor with data for October, the euro was able to sharply strengthen against the dollar in the previous two trading days.
Over the past Friday–Monday, the EUR/USD pair managed to grow by 2.5%, again rising above parity.
As you know, on Friday, the dollar fell sharply after a report by the US Department of Labor indicated an increase in unemployment in the country. In October, it increased from 3.5% to 3.7%, with a forecast of 3.6%. The growth in the number of new jobs created by the US economy outside the agricultural sector amounted to 261,000 in October against the expected 200,000. The September indicator was also adjusted upwards, from 263,000 to 315,000. Despite the positive NFP report, market participants perceived the increase in unemployment as a signal to fix long positions on the dollar, which collapsed throughout the market. The sellers of the dollar were not even confused by the fact that, despite the relative growth, unemployment in the United States continues to remain at minimum pre-pandemic levels.
Moreover, ahead of this, Fed Chairman Powell confirmed that there is no need to talk about any pause in the cycle of tightening the monetary policy of the US central bank yet.
"Now it is very premature to think about a pause, it is very premature to even talk about it," Powell said during this press conference following the Fed's meeting that ended last Wednesday. He acknowledged that "the US economy has slowed significantly compared to last year," but "without price stability, there is no sustainable strong labor market... Price stability in the US is good for the global economy," Powell summed up his statements.
The ECB, too, judging by the statements of its representatives, is ready to continue the accelerated tightening of its policy. But here, it is also necessary to take into account the difference in the economic situations in the US and the Eurozone, given also the high geopolitical risks in Europe and the crisis in the European energy market, despite the fact that the US is their major producer.
Economists believe that it will be difficult for the EUR/USD pair to gain a stable foothold in the zone of any significantly higher parity.
Today, the midterm elections to the US Congress are in the focus of market participants' attention. However, their final outcome is likely to be known only tomorrow.
And today, after the publication (at 10:00 GMT) of retail sales data in the eurozone, important macro data for the USA and the eurozone are not planned in the economic calendar, except for the publication at 11:00 and 12:55 of the American NFIB business optimism index and the redbook retail sales index. However, they are unlikely to cause a strong increase in volatility in the quotes of the dollar and the EUR/USD pair.
As of writing, it is again trading near the 1.0000 mark, also trying to gain a foothold in the zone above the important short-term support levels 0.9883, 0.9905, 0.9920. One way or another, below the key resistance levels 1.0210, 1.0390, EUR/USD remains in the global bear market zone. Below these levels, short positions remain preferable.
