Weak euro despite hawkish statements from the ECB

Yesterday, the Wall Street stock market was closed. Americans celebrated Martin Luther King Day. EUR / USD exchange rate tonight it fell to 1,0910 and was the lowest since January 5. In Europe, stocks fell and bond yields rose after one ECB representative denied the possibility of quick interest rate cuts, even though the German economy recorded a decline of 0,3 percent. throughout 2023.

Crude oil lost yesterday. However, the declines were reversed due to events in the Middle East. Gold gained on Monday's session, but currently declines dominate. An ounce currently costs approximately $2045.

A recession cannot be ruled out

Yesterday, one of the representatives of the ECB Governing Council, Robert Holzman, spoke. He said that risk resulting from persistent inflation will prevent the ECB from cutting interest rates this year, even if a recession can no longer be ruled out. In turn, Joachim Nagel from the same institution suggested that summer may be a good time to start considering reducing borrowing costs. They joined other bank representatives (Christine Lagarde, Constantinos Herodot, Philip Lane) in warning that it is too early to talk about reductions in the coming months.

At this point, the OIS market values ​​less than 80 percent. chances that the cost of money in the euro zone will be reduced by 25 basis points by April and assumes a total reduction of over 140 basis points by the end of 2024.

The market is my opinion too optimistic about the date of the first decision to ease monetary policy. Everything will depend on the data, so attention will now be focused on Wednesday's final inflation reading from the euro zone. Today we received the results from Germany. The CPI and HICP indicators increased year-on-year, as expected, to 3,7 percent, respectively. and 3,8 percent On a monthly basis, we also received an increase to 0,1%. with -0,4 percent (CPI) and up to 0,2 percent with -0,7 percent (HICP).

The German economy will shrink

Yesterday, investors learned how the German economy was doing. This shrank by 0,3% last year. which was widely expected. Other data also indicate the poor condition of our western neighbor. Sentiment indicators such as business climate I fo, remain in recession territory. The recent decline in new orders is having an increasing impact on industrial production. Research suggests that companies largely completed outstanding orders from the pandemic period. Meanwhile, industrial production is also on a downward trend. All this suggests that the German economy is likely to shrink even further in the first quarter.

Despite hawkish statements from the ECB, the EUR/USD rate did not appreciate. Daily lows were set just below 1,0940 and this morning the declines are deepening and the support at 1,09 is being "broken".

Crude oil gained overnight and this morning and continued to make up for losses after yesterday's declines. This is the result of events in the Middle East. Houthi militants hit a US-owned commercial ship with an anti-ship ballistic missile. A barrel of Brent is priced at over USD 78,5 this morning and WTI at USD 72,8.

Source: Łukasz Zembik, OANDA TMS Brokers