VOT Research Desk
EUR/USD KEY INSIGHTS
- EZ Consumer Confidence
- Energy prices are a concern going forward.
- ECB walks a tightrope as winter approaches.
Eurozone consumer confidence for August printed in line with forecasts (see economic calendar below) coming off July lows. While there is some optimism around the slight improvement, economic and industrial sentiment missed estimates showing underlying concerns by other stakeholders including manufacturers, retailers, and service providers.
The unease stems from soaring energy prices and with the European region heading into the winter months, pressure on the consumer and industry will take its toll should elevated energy prices endure. Looking at German wholesale electricity prices we can clearly see the trend higher which is likely to continue through to the end of 2022. Germany is often used as a barometer for the eurozone with the economy being the largest of the constituent nations.
Declining sentiment in the EU will add unwanted pressure on the European Central Bank (ECB) in titspursuit to quell inflation, particularly after the hawkish speech by Federal Reserve Chair Jerome Powell last week at the Jackson Hole Economic Symposium.
The increasing divergence between central banks (Fed and ECB) has bolstered the USD and will add to inflationary pressure via a weaker euro. Money markets are currently pricing in a 62bps interest rate hike for the September 8th meeting but with tough time ahead
It can be foreseen the ECB sticking with 50bps due to the current watery fundamental environment. Just before the consumer confidence release, the ECB’s Lane delivered some aggressive statements including the need to continue raising rates which helped prop up the euro. Another ECB official (Robert Holzman) a known hawk may well add to this narrative later today during his speech leading to further upside.
