Stealth
Whilst it may soon be ending, the latest economic paradigm that has endured globally has been one of high inflation and economies have been virtually defined by respective central banks’ race to adjust interest rates. Rates are now widely expected to fall later this year, but until they do I conjecture we are still very much within the current phase. This phase of the cycle isn’t one we’re terribly familiar with. In recent economic challenges (the European sovereign debt crisis, the Great Recession to name but a couple), a spike in inflation as a result of the fiscal and monetary policy policies implemented during the crisis era hasn’t prevailed. A lack of familiarity has ensured that there have been few certainties along the way during this phase.
Whichever way the wind has been blowing throughout this period, however, you can usually bet the Eurozone has found itself in a gale. The Eurozone economy was late to the party of adjusting rates higher. Concerns over domestic growth and economic activity led the ECB to sit on its hands when the rest of the world was adjusting policy. Despite aggravating inflation expectations by delaying its tightening cycle, the terminal rate has always been priced lower in the Eurozone compared with that in the UK and US. Growth expectations have also been weak, hampering the Euro. Overall, Europe has been the sick man of developed market economies.
By stealth, this fortune seems to have changed so far this year. Consistent with a rising Euro that this week has endured an above target CPI print and yet another hot US jobs print, markets are starting to price in a more invigored Eurozone economy. The easing cycle in the Eurozone had always been priced to commence several months earlier than similar monetary policy adjustments expected in the UK and in the US. However, there is now very little difference in the pace and commencement date for monetary easing amongst the two geographies. This is thanks in no small part to improving growth expectations within the Eurozone. Take a look at the corporate bond space and the backdrop is increasingly in favour of the Euro. Despite USD looking perhaps undervalued in the short run thanks to the recent sell-off in the Dolar, the fundamentals for the Euro are improving by stealth.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – Strong USD
Humphrey Percy
Fri 11 Jul 2025
Strong USD Those punitive tariff threats – Copper 50%, Brazil 50% and Pharmaceuticals 200% had a marked effect on USD. Bizarrely, while POTUS has been conducting his self-harming measures on the USA and the USD, he sees no contradiction in maintaining that he sees USD remaining the primary world reserve currency. A total of 22 […]
Daily Brief – Australia
Humphrey Percy
Wed 9 Jul 2025
Australia Falling inflation, sluggish economic growth, a strong currency, lower living standards and low productivity would normally easily add up to an interest rate cut by the central bank: not in Australia where it was widely expected that yesterday would indeed see a rate cut. That is because the Reserve Bank of Australia is worried […]
Daily Brief – Poland
Humphrey Percy
Mon 7 Jul 2025
Poland June 2025 will go down as a milestone for the energy sector in Poland as it was the first month that renewable energy overtook fossil fuels as a proportion of Poland’s total energy requirements. Poland is one of the highest emitting countries only behind China, Kuwait, South Africa, and Kazakhstan and despite coal consumption […]
