The Euro has continuously depreciated against several major currencies since Dec. 2020. The Euro trend coincided with gold prices and the start of an increase in Fed rate hike expectations. The US central bank had signalled it was done adding to Covid-inspired stimulus measures. The commencement of the Fed’s tightening effort in June 2021 brought in the beginning of the deepest drop in the bearish line.
The markets believed ECB would not earnestly follow the US lead like other major central banks. The second quarter of 2022 saw European officials showing a willingness to act as the regional CPI inflation recorded highs, hitting an 8.1% rate in May.
The Euro then gained ground and increased as rate hike expectations were absorbed into prices.
The ECB formally announced incoming interest rate hikes on June 9, sparking a lot of speculations on the debt crisis and heightening fears, given that the central bank previously said it would end bond purchases in July. This development stalled the rise in EUR and increased worries about the high level of debt in some Euro area economies.
The structural reform required to untie the ECB’s hands – creating a joint “Euro-bond” or completely reducing debt levels in southern Europe appears unattainable as the Franco-German push needed for progress is a tall order. At the same time, Berlin and Paris might be focused on other priorities.
The Ukraine war and its implications on regional geopolitical and economic stability as well as its effect on Russia’s energy supply to other nation-states in an issue for concern. So is the interruption of economic activities in China as a result of the zero covid policy instigated lockdown.