Friday Brings Bullish Sentiment

Positive market sentiment usually means a lower USD and the dollar dumped notably today, pushing EURUSD above 1.01, GBPUSD above 1.16, and USDJPY to 142, igniting bullish momentum across other markets.

However, as winter approaches, rising gas prices are threatening to force some of the highly reliant on Russian supply European nations into rationing, perhaps closing down industry and throwing the area into a deep recession.

“A few weeks like this and the European economy will go into a full stop. Recovering from that is going to be much more complicated than intervening in gas markets today,” Belgian Prime Minister Alexander De Croo said Thursday in an interview with Bloomberg News. “The risk of that is de-industrialization and severe risk of fundamental social unrest.”

ECB sounds hawkish

After the European Central Bank raised rates by 75 basis points as anticipated, the single currency surged above parity against the US dollar.

The ECB updated its inflation forecasts, which now call for average inflation rates of 8.1% in 2022, 5.5% in 2023, and 2.3% in 2024. Despite indications of a recession, policymakers anticipate continued economic growth, with the annual GDP expected to increase by 3.1% in 2022, 0.9% in 2023, and 1.9% in 2024.

President Christine Lagarde’s press conference provided some insight into the potential course of action. She predicted that it would take more than two meetings. Still, less than five, to cease rate rises and get interest rates to neutral level; however, while emphasizing that it is not typical, she also dampened expectations of a further 75 bps boost, adding that they might opt for more extensive hikes if necessary.

75bps also in the USA?

Charles Evans, Governor of the Fed, and Esther George, President of the Kansas City Fed, will both give a speech later today.

Meanwhile, According to the CME Group FedWatch Tool, the likelihood of a 75 basis point rate hike in September increased to above 80%.