2022 continues to be a bad year for financial markets, currencies, and country economies. In the United States, consumer prices rose at their quickest rate in 40 years in June, mostly due to increasing energy costs.
The Bureau of Labor Statistics issued a report on Wednesday showing that the consumer price index rose 9.1 percent in June compared to a year earlier and 1.3 percent in May, indicating little progress in the battle against inflation. In November 1981, inflation was at a record high of 9.1 percent.
Due to this, the Eurozone currency has depreciated by a few hundredths of a cent against the US dollar for the first time in twenty years.
At one point, according to Reuters and Bloomberg, the euro was trading at $0.9998 to the dollar. The Euro has lost 19 percent of its value this year and has plummeted from its 2008 top of $1.60 to the current value of $1.32.
The Problem Of Inflation In The U.S.
Inflation is now the nation’s most pressing economic challenge, according to the June statistics, which also raises fresh concerns about the economy’s ability to withstand another recession, despite recent gains in the job market and consumer spending.
Core CPI, which does not include volatile food and energy costs, rose by 5.9 percent, as opposed to the projection of a 5.7 percent raise. By the end of March, core inflation had fallen to 6.5% from its high of 6.5% in early 2012.
The headline CPI grew 1.3 percent and the core CPI gained 0.7 percent on a monthly basis, contrary to expectations of 1.1 percent and 0.5 percent, respectively. Numbers as a whole suggested that inflation had not yet peaked, since increases were spread across different categories.
The U.S. inflation rate hike has had a dramatic effect on several industries, especially this is true in the case of the financial markets. Investors nowadays want to make their assets protected and forecast future price changes in the market. Traders started to use technical indicators for FX trading, for one main reason – to foresee how the situation will develop in terms of price changes. Technical indicators’ main goal is to show how the prices will change in the near or further future, for how long the trend of price fluctuation will stay in the market, and so forth. This approach is frequently used by those investors who analyze the market in a technical way, rather than fundamentally.
Pressure is mounting on families in the United States due to the country’s soaring inflation, which is making it increasingly difficult for them to afford luxuries such as haircuts and gadgets. Low-income and minority groups, such as African Americans and Hispanics, face greater hardships since they must spend a bigger percentage of their income on needs.
Inflation is expected to fall this year, but only by a little amount, according to economists. Some experts believe that the government’s consumer price index will fall below 7 percent by the end of the year. A record high of 8.5% for the year-over-year CPI was recorded in March.
“The scope of the pricing pressures is extremely troubling for the Federal Reserve,” ING’s top international economist, James Knightley, said. Because supply circumstances aren’t improving, the Fed should use higher interest rates to slow down demand so that supply can catch up. The risk of a recession is increasing.”
The Dip Down Of The Euro
The euro has fallen as a result of recession worries and rising energy prices in Europe due to a deadlock between Russia and the EU over Russia’s natural gas supply. Russia’s conflict in Ukraine might potentially lead to a European recession because of supply chain disruptions.
The euro’s decline versus the dollar this year has been part of a longer-term trend. Since the establishment of the euro in 1999, the euro has never come near to parity with the U.S. dollar.
The Hungarian forint, the Polish zloty, and the Romanian leu, all Euro-related currencies, have all fallen significantly versus the US dollar.
Despite these concerns about Europe’s economy, stock indexes in Frankfurt, London, and Paris all fell more than 1%. For the first time in over two decades, the euro fell below parity versus the dollar. This is the lowest price it’s been since December 2002 as of 1:45 p.m. British Summer Time. Now it’s $1.0017, down 0.2 percent from its opening price. It’s the worst the pound has been since March 2020, trading at $1.1863, down 0.2%.
Against the Swiss franc, the euro has fallen to its lowest level since the Swiss National Bank abandoned its currency limit in 2015. Despite the pound’s own economic troubles, it also plummeted against it.
There are concerns about a worldwide recession, as well as the growing value of the dollar, which is considered a safe haven in times of uncertainty.