Since the beginning of this year, due to the intensified monetary policy differences between Europe and the United States, the euro has fallen by more than 10% against the US dollar, and last week it fell to parity for the first time since 2002.
This Thursday, the European Central Bank launched its first interest rate hike since 2011. After raising the three major benchmark interest rates by 50 basis points beyond expectations, the euro jumped short-term against the US dollar, once rising to the highest level of 1.0277 in the past two weeks. However, after ECB President Lagarde said at a later press conference that he canceled the forward guidance, he immediately gave up almost all previous gains and finally closed at 1.0228.
Analysts generally expect that the variables facing the euro are far more than the ECB's interest rate hike process. High inflation, energy crisis, "fragmentation" risks, and political instability in Italy are all factors that affect the euro's trend. It is still inevitable that the euro will fall back to parity later this year or even fall below parity. Michael Brown, head of market intelligence at
Caxton, believes that given the increasing risk of recession within the euro zone, any rebound in the euro may be short-lived.
In the early trading of the Asia-Pacific today, the euro fell below the 1.02 mark again, and as of noon, the reporter's deadline was 1.0190.
cannot save the euro by hikes alone. Derek Halpenny, head of global market research at European global markets at
MUFG, said: "The euro fell sharply on Thursday (after the ECB's first exceeded expectations) and supported our usual view that the ECB is unlikely to reverse the euro's bear market trend by simply increasing the rate hikes ahead of the day. Investors are also concerned about the risk of a sharp slowdown or even falling into a recession in the second half of this year."
Last week, the European Commission lowered its forecast for the 2022 euro area GDP growth from 2.7% to 2.6%, and the forecast for next year also lowered its forecast from 2.3% to 1.4%. The International Monetary Fund (IMF) lowered its forecast for the euro zone locomotive Germany this week to 1.2% and 0.8% respectively.
Danske Bank said in a research report that the euro is still fundamentally overvalued against the US dollar. Therefore, at the current stage, any euro rebound triggered by the ECB will be regarded as an opportunity to continue shorting the euro. Danske Bank expects the ECB to raise interest rates by 100 basis points this year, but also expects the euro to fall to and stabilize below parity in the coming quarters.
Karen Jones, a foreign exchange analyst at Commerzbank, also believes that any rise in the euro will be unsustainable in the next few trading days. She said the fate of the euro ultimately depends on whether the European Central Bank can successfully control inflation while not allowing tighter monetary policies to put too much burden on the real economy.
In addition, the concerns about the new crisis tool launched by the European Central Bank, the "Conduction Protection Tool" (TPI), is also the reason why the euro's short sentiment remains unabated. Analysts believe that the ECB maintained a "vague" statement about TPI, and the situation in Italy has also made it more complicated to enable TPI.
Foreign media quoted people familiar with the matter as saying that although ECB officials agreed to create this tool, they believe that it is unreasonable to use it in the current situation because the uneasiness in the Italian market is related to its domestic political development, and the domestic political situation in Italy is not within the scope of launching the TPI. According to the ECB's documents, the decision to initiate the TPI will be based on a comprehensive assessment of a range of market indicators and monetary policy transmission indicators, an assessment of member state qualification standards, and a judgment on whether the implementation of the TPI is consistent with the ECB's main goals.
Analyst Rodrigo Catril of National Australia Bank said: "The ECB's description of the details, application qualifications and how to start the TPI are all vague. In the moment of political turmoil in Italy, it is almost impossible to boost market confidence."
The ECB is unlikely to over-intervention in
000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000 On the one hand, the continued weakening of the euro will increase the import costs of Europe, thereby further aggravating the inflationary pressure in Europe. The euro zone inflation in June was announced to hit another all-time high, more than four times the 2% target.On the other hand, if the ECB takes a tougher position to support the exchange rate, or raise interest rates more quickly and significantly, it may drag down economic growth.
Eurozone economist Greg Fuzesi of JPMorgan Chase said that since the US dollar remains the preferred currency for global trade, the appreciation of the US dollar against the euro will increase the cost of imports in Europe as natural gas prices soar.
Lagarde also said at a press conference on Thursday that the weakening of the euro exchange rate was part of the reason for the decision to raise a sharp interest rate.
But the market currently believes that the European Central Bank is unlikely to oversupport the euro. "The ECB knows that falling into a cycle of trying to support the currency through central bank actions is quite dangerous, because excessive tightening measures that may be taken to support the currency will harm the economy and the currency itself," said Andrew Mulliner, bond portfolio manager at Janus Henderson Investors. "Karen Reichgott Fishman, a foreign exchange strategist at Goldman Sachs, also said that the possibility of the ECB intervening in the short term is very small, and Lagarde and her colleagues have more and more urgent things to deal with, such as the continued surge in euro zone inflation, the risks of energy supply and the deterioration of the bond market.
"Worries about political turmoil in Italy exceed those of concerns about the depreciation of the euro, and the European Central Bank's chances of interfering in the foreign exchange market at this time are very small," she said.
