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Market News The euro fell to its lowest level since July last year! The market is more optimistic about the U.S. dollar after the announcement of the CPI
The euro fell to its lowest level since July last year! The market is more optimistic about the U.S. dollar after the announcement of the CPI
As the US consumer price inflation report is more popular than expected, the market has increased its bets on the Fed to raise interest rates, and the euro fell to its lowest level since July last year.
2021-11-11
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Given that the market was partially closed due to Veterans Day, the US market is expected to be relatively calm. The euro against the US dollar hit a record low since July last year, while the US dollar index stood above the 95 mark.
On Wednesday, U.S. consumer price inflation reports were hotter than expected, leading to soaring U.S. bond yields and inflation expectations, and forcing the U.S. dollar short-term interest rate (STIR) market to increase hawkish bets, causing the euro to start a decline against the U.S. dollar. A new low this year. In the process, the euro fell below a key support level against the dollar, the March 2020 high of 1.1495.
The 1.0% drop on Wednesday was actually the second time the euro fell against the dollar in the past two weeks (the euro also fell 1.0% against the dollar on October 29). Nonetheless, this was the biggest drop since June. On the downside, the next key support zone is the June 10, 2020 high of approximately 1.1422.
The above resistance initially focuses on the daily high of 1.1488, and then upwards on the October 12 low of 1.1524 and the 10-day moving average of 1.1560.
(Daily chart of the euro against the dollar)
Wednesday’s inflation data triggered a more hawkish repricing in the U.S. dollar short-term interest rate market. December 2022 Eurodollar futures (the market expects the fed funds rate to move in December next year) fell to the lowest of the year below 99.05 on Thursday morning (meaning that the fed funds rate will reach 0.95% by the end of the year). There has also been a mild hawkish repricing in the euro short-term interest rate market, but it is not as large as the US market. The December 2022 Euro Interbank Offered Rate Futures (the market expects an indicator of the European Central Bank's deposit interest rate in December next year) has fallen to about 100.25 from less than 100.35 earlier this week.
Therefore, since the release of the inflation report, the euro-dollar spread has moved significantly in favor of the U.S. dollar. This can also be seen by the 5 basis points widening of the US-German two-year spread on Wednesday. Therefore, it is not surprising to see the dollar gaining support now.
CIBC believes that the European Central Bank may keep interest rates unchanged until 2023, commenting that the policy gap (between the European Central Bank and the Fed) highlights why we continue to be optimistic about the poor performance of the euro against the dollar, and expect the euro against the dollar It will fall back to 1.10 in 2022.
On Wednesday, U.S. consumer price inflation reports were hotter than expected, leading to soaring U.S. bond yields and inflation expectations, and forcing the U.S. dollar short-term interest rate (STIR) market to increase hawkish bets, causing the euro to start a decline against the U.S. dollar. A new low this year. In the process, the euro fell below a key support level against the dollar, the March 2020 high of 1.1495.
The 1.0% drop on Wednesday was actually the second time the euro fell against the dollar in the past two weeks (the euro also fell 1.0% against the dollar on October 29). Nonetheless, this was the biggest drop since June. On the downside, the next key support zone is the June 10, 2020 high of approximately 1.1422.
The above resistance initially focuses on the daily high of 1.1488, and then upwards on the October 12 low of 1.1524 and the 10-day moving average of 1.1560.
(Daily chart of the euro against the dollar)
The market is betting on the Fed to raise interest rates
Wednesday’s inflation data triggered a more hawkish repricing in the U.S. dollar short-term interest rate market. December 2022 Eurodollar futures (the market expects the fed funds rate to move in December next year) fell to the lowest of the year below 99.05 on Thursday morning (meaning that the fed funds rate will reach 0.95% by the end of the year). There has also been a mild hawkish repricing in the euro short-term interest rate market, but it is not as large as the US market. The December 2022 Euro Interbank Offered Rate Futures (the market expects an indicator of the European Central Bank's deposit interest rate in December next year) has fallen to about 100.25 from less than 100.35 earlier this week.
Therefore, since the release of the inflation report, the euro-dollar spread has moved significantly in favor of the U.S. dollar. This can also be seen by the 5 basis points widening of the US-German two-year spread on Wednesday. Therefore, it is not surprising to see the dollar gaining support now.
CIBC believes that the European Central Bank may keep interest rates unchanged until 2023, commenting that the policy gap (between the European Central Bank and the Fed) highlights why we continue to be optimistic about the poor performance of the euro against the dollar, and expect the euro against the dollar It will fall back to 1.10 in 2022.
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