Euro Tanking

[dan_s]

This is why the US dollar is so high, putting downward pressure on oil price.

EUROZONE : The Governing Council of the European Central Bank (ECB) raised its three key policy rates by
75 basis points when central bankers met on September 8. With the ECB’s decision, the interest rates on main
ref inancing operations, the marginal lending f acility and the deposit f acility will be increased to 1.25%, 1.5%,
and 0.75% respectively , with ef fect f rom September 14 . Despite weak growth prospects in the Euro area, the
ECB maintained its hawkish stance and signaled f urther interest -rate hikes in the near term. In the
accompanying press release, the Governing Council stated that it expects to “raise interest rates further to
dampen demand and guard against the risk of a persistent upward shif t in inf lation expectations .” The
increase in policy rates on September 8 f ollowed a 50 -basis point increase on July 21 .

With annual inf lation at 9.1% in August, an energy crisis, deteriorating conditions in the manuf acturing
sector s in France and Germany, and a weakening global eco nomy , the ECB’s outsized hike could imply that it
will have a shorter hiking cycle, with interest rates staying higher f or longer.

The ECB also upwardly revised its inf lation projections. It now expect s annual inf lation to average 8.1% in
2022, 5.5% in 2023 and 2.3% in 2024, up f rom 3.3% in 2022, 2.8% in 2023 and 2.3% in 2024 in its June
forecast. PNC Economics expects the ECB to raise its policy rates further by 50 basis points on October 27 and
25 basi s points on December 15, taking the interest rates on main ref inancing operations, the marginal
lending f acility, and the deposit f acility to 2.0%, 2.25% and 1.5% respectively.

PNC Economics f orecasts f or the euro to depreciate against the dollar into 202 3, given expected aggressive
Fed hikes in the near term, and better economic prospects in the U