Since last week, when inflation in the United States exceeded 6 percent, the strength of the USD seems to be increasing. As a result, the EUR/USD rate beat the 1.14 level yesterday and fell to 1.1360. This may also have had an impact on the USD/PLN rate's rise to 4.08.
The overall US Dollar Index rose above 95.3 points on Tuesday, after a roughly half-percent gain during the previous session, while the Euro may have lost ground as a result of further statements from European Central Bank representatives regarding policy tightening, or basically the lack thereof.
Two big banks and two different action plans
ECB President Christine Lagarde said Monday that tightening monetary policy to curb inflation could stifle the eurozone's recovery and maintained that the drivers of price increases will fade next year, a growing contrast to the hawkish guidance from other central banks.
Meanwhile, markets await Tuesday's U.S. retail sales data, as stronger-than-expected consumer spending could increase pressure on the Federal Reserve to accelerate rate hikes.
Thus, there may be a divergence in expectations, and subsequently in actions, of the world's two powerful central banks. The Fed may move towards moderate interest rate hikes, while the European Central Bank may leave interest rates unchanged. This, in turn, may influence the increase of interest rates on, for example, American bonds, while stopping the profitability of European bonds, including German ones. In such a situation, the spread, i.e. the difference, between US bonds and German bunds may widen, which may be one of the positive factors for the dollar.
Stocks gain from weak euro
The weakness of the euro may favor European exporters, whose shares are listed in European stock indices. European stock markets appear to have closed slightly higher on Monday, with the pan-European Stoxx 600 index and the German DAX hitting record highs for the fourth consecutive day, which may also have been helped by strong corporate earnings.
The weaker euro, the good health of companies, the pandemic recovery program and the maintenance of low interest rates, this environment seems quite good for the stock market.
Today before noon, the Euro Stoxx 50 was trading in the region of 4400 points and the DAX tested 16190 points. Currently, it seems that the European indices are rising, while the American ones have started to consolidate.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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