The euro started the week on a strong note against the dollar, rising 0.55% in the evening on interbank trading to $ 1.0785, after a larger-than-expected rise in prices in Spain and Germany, where inflation in May exceeded 8.5%. to harmonized European data (HICP).
Now the European currency has recovered almost 4% from May 12 to return to its highest level in more than 5 weeks, thanks to a change in the more “hawkish” tone of the ECB and its head Christine Lagarde, who plans to raise key rates. to a positive value by September (compared to -0.5% now for the deposit rate).
For its part, the dollar index, which recently reached its highest level in 20 years amid an insulting speech by the Federal Reserve on inflation, has become a source of profit in recent days. The dollar index on Monday night rose 0.34% to 101.33 points against a basket of reference currencies in a quiet market, Monday was a day off in the United States on Remembrance Day.
Inflation is accelerating further in Germany and Spain
The German institute Destatis announced on Monday the acceleration of May inflation in Germany to the highest level in 50 years. According to preliminary data, consumer prices jumped by 7.9% in May after 7.4% in April, while the consensus was + 7.6%. Inflation in line with European standards reached 8.7% against 7.8% in April and + 8.1% of the consensus.
We need to go back to the winter of 1973-1974, the period of the first oil shock, to find a comparable level of inflation, Destatis said.
In Spain, inflation rose to 8.7% in May after 8.3% in April and against the consensus of + 8.5%. According to European standards, prices rose by 8.5% against + 8.3% in April and + 8.3% by consensus.
These figures increase the pressure on the ECB, which will hold an important meeting on June 9, during which the European Central Bank will announce in detail its plan to combat rapid prices, as the European economy faces the risk of slowdown due to the Ukrainian crisis.
In September, again to positive ECB rates
ECB chief economist Philip Lane said in an interview with the Cinco Dias on Monday that the normalization of monetary policy would be gradual: Naturally, normalization takes the form of an increase of 25 basis points, so an increase of this magnitude during the July and September meetings is a benchmark. “There will be a debate, but our current assessment of the situation, in which we believe that the medium-term inflation forecast meets our 2% target, requires a gradual approach to normalization,” he added.
This is confirmed by recent remarks by ECB President Christine Lagarde, who said she was in favor of raising interest rates in July in order to bring them into positive territory by the end of September. The ECB will hold monetary policy meetings on 9 June, 21 July, 8 September, 27 October and 15 December.