The world economy is in for some introspection as the US Fed eyes go for a hike of 75bp sometime in September. This comes after the 2-year US yields rise by 10bp to touch 3.48%. DXY is at its highest since September 2002, with 109.47. Twenty years later and talks have gained space in the economy again.
DXY has already rallied by more than 14.5% since the current year started; however, there is a question of further rise as the Euro is trembling to take the 57% of its share in the basket for a cold ride. The Euro has fallen nearly 13% in the same period with little support from the ECB.
The board has come up with a hawkish comment to push the European yield on the higher side, hinting at a probable hike of 75bp that is supported by the OIS market, which is priced 60% in favor of the planned condition.
ECB hikes could cumulatively go up to 200bp by February 2023. The next six months will keep everyone tied to their trading board as the economies draft their plans to handle every type of situation. There is support for EURUSD from the home side after European gas prices slide.
The region is reportedly preparing for emergency intervention and structural reforms of the electricity markets, as noted by Ursula von der Leyen, the President of the European Commission.
What reversed the situation is the decline in the Dutch gas futures which came down by 20% to sit at EUR272/MWh from an above seat of EUR340/MWh. This took the previous week’s rise of 40% in the opposite direction, majorly triggered by the headlines that the gas facilities of Germany would be near 85% in September. Situations have changed from a friendless Euro to the one where it looks to bring a balance without having to give up on any gain.
Momentum has gone missing for a while, with still some hopeful signs for the future.
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