The EUR/USD pair continued to rise during the first half of the week, but dramatically failed at parity, ending the week at roughly 0.9750, resulting in a minor weekly loss.
At the beginning of the fourth quarter, optimism ruled supreme as Wall Street reported enormous gains and government bonds continued their weekly advances.
Risk appetite is supporting the EUR/USD exchange rate.
Market participants anticipated that central banks will reduce the pace of quantitative tightening sooner rather than later due to the increasing possibility of a global recession.
This speculative activity as well as the demand for high-yielding assets were fueled by the Reserve Bank of Australia's lower-than-anticipated 25 basis point increase in the cash rate.
But the positive energy was short-lived. On Wednesday, when the EU suggested additional penalties against Russia for its invasion of Ukraine in February, the value of the common currency started to decline.
Following the illegitimate takeover of the provinces of Donetsk, Luhansk, Kherson, and Zaporizhzhia, sanctions were put in place that included a price cap on Russian oil as well as limitations on imports and exports to and from the country.
There are issues with the European Union.
Additionally, weak EU statistics revived concerns about an economic slump in the Union, reducing the risk-positive atmosphere. S&P Global downgraded its PMIs for September, pointing to a further slump in the business sector.
While retail sales in August dipped by 0.3% while German sales fell by 1.3%, wholesale inflation in the EU increased by 43.3% year over year.
The Monetary Policy Meeting Accounts of the European Central Bank also affected the common currency. The memo states that some officials supported a rate increase of 50 basis points, which was higher.
In addition, the median prediction for inflation over the next three years stayed at 3%. The euro's devaluation may aggravate inflationary pressures, but policymakers stressed that taking "decisive" action now may prevent the need to raise interest rates more strongly in the future.
Officials of the US Federal Reserve are more pessimistic than ever.
As speakers from the US Federal Reserve reached the lines, reflecting their well-known hawkish tone, the market's mood worsened even further.
Neel Kashkari, president of the Minneapolis Fed, said that there is still work to be done on the issue of inflation and that, despite the risk of overshooting, there is practically no evidence that inflation has peaked.
Inflation is their top concern, according to Charles L. Evans of the Federal Reserve Bank of Chicago and Loretta Mester of the Federal Reserve Bank of Cleveland.
Governor Christopher Waller concluded by saying that he does not see any reason to delay the Fed's tightening of policy. American data, meanwhile, have raised hopes that the Federal Reserve will stick to its aggressive monetary tightening track.
The country gained 265K new employment in September, which was higher than anticipated but less than the previous month, according to the September Nonfarm Payrolls statistics.
Unemployment unexpectedly decreased to 3.5%, although labor force participation decreased to 62.3% from 62.4% in August, which was less than expected. The revelation came after a spate of gloomy US job statistics.
On Tuesday, market participants learned that there were significantly fewer job openings in August, yet there were still more than 1.5 million layoffs and discharges.
In addition, US-based businesses reported 29,989 layoffs in September, up 46.4% from August and 67.7% from a year earlier, according to the Challenger Job Cuts report released on Thursday.
Finally, surprisingly rising to 219K for the week ending September 30, first claims for unemployment benefits exceeded expectations of 200K. Despite contradictory evidence, the labor market seems resilient enough to survive rate increases. Inflation is the key factor.
There will be fewer but more intriguing events the next week. The government will release the September Consumer Price Index on Thursday, while the US Federal Reserve will release the minutes of its most recent meeting on Wednesday.
This year, annual inflation is predicted to increase by 8.1%, which is a modest increase over last year's 8.3%. The predicted core reading is 6.5%. Even if the CPI decreased in August, the market's expectations for the Fed's actions are unlikely to be much affected.
The September Harmonized Consumer Price Index for Germany, which is expected to stay at 10.9%, will be released. On Friday, the focus will be on US September retail sales.
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