Foreign exchange market update: Bye bye negative rates!
- Currency exchange
Another 0.5% in September?
After a decade, the time has now come: interest rates are also rising in Europe, and they are rising sharply! With an interest rate increase of 50 basis points, the European monetary authorities are reacting to the record inflation in the euro zone and are ending their zero interest rate policy. For many, the move comes too late as other central banks have reacted already months ago. Since inflation is not expected to come down significantly before 2023, these 50 basis points were probably just the beginning.
But how high will interest rates go? What traces are the rising interest rates leaving on the economy? These and many other questions will keep us busy for the next few months. One thing seems clear however, we are not at the end but at the beginning of a global movement towards higher interest rates.
A lot of uncertainty and insecurity is responsible for the fact that we have not seen any sustained market reaction after the most recent policy announcement of the European Central Bank. Immediately after the interest rate hike, the Euro was able to gain ground but had to give up all its gains a little later.
On the currency market, which traditionally always has some sort of summer holidays at the end of July and beginning of August, currency movements are currently heavily influenced by movements in the EUR/USD rate. Although there are signs of bottoming out and more and more market participants tend to believe in a correction of the Euro, no signs of a sustainable correction were observed. The same applies to the EUR/CHF rate.
EUR/USD chart levels
The graph below shows the interest rate development in the US:
The whole world is assuming that interest rates will rise, but US interest rate graphs show us that within just a few weeks or months a return to a zero interest rate policy is possible or conceivable at any time. This should be taken into account as a possible interest rate scenario in the context of falling inflation expectations in 2023.
Please note that this elaboration was completed on 22/07/2022 12:57 CET.
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