Euro’s Unexpected Comeback: It’s Not Just a Feeling!
Yesterday, the euro popped out of the shadows and gave a dazzling boost against the big names in the currency world. If you were watching the market at around 10 a.m. GMT, you’d have seen the euro trade at roughly 1.0670 USD – that’s the strongest it’s been since last Tuesday. And when it flew to the sterling side, it hit 0.8752 GBP, topping the charts since May 5th. But the real head‑liner? The euro’s leap over the yen to about 160.85 JPY – its best since the fall of 2008!
Even As Prices Are Cooling
Hold on – this surge is happening while the eurozone is reporting a chilly dip in inflation. The latest CPI snapshot shows the weakest growth in October since July 2021, with a read of 2.9% compared to the same month last year – below the market’s expected 3.1%. Core inflation, meanwhile, ticked up at 4.2% year‑on‑year, matching forecasts but still falling short of the previous 4.5%.
Retail sales in the euro area also shrank – a whopping 4.3% year‑on‑year slump, which is the biggest contraction since April of last year. These figures are a smack‑down for consumer confidence and show the tightening bite of monetary policy wearing off.
What This Means for the Flashy Euro
- ECB’s pause on rate hikes might feel like a breath of fresh air, but credit markets are still tight. That lessening of borrowing power could keep the economy’s revival on hold longer than many thought.
- Long‑term Euro government bond yields are still riding high, near their 2011 peaks, keeping borrowing costs stiff for businesses.
- With the EU’s growth teasing, the euro is looking for extra help. And that help is lurking in the US dollar’s decline.
The Dollar’s Dwindle, and the Fed’s Move
Just a day before the Federal Reserve’s rate decision, the US dollar slipped. Most market players think the Fed will keep rates steady for now – they’re not surprised, given the robust U.S. economy and its strong labour market. The big question is: when will the Fed start cutting rates? Markets are lumbering toward a second‑half‑2024 forecast (or later).
US Treasury yields are also falling. Ten‑year bonds hit a one‑week low at 4.180%, underpinning the dollar’s wobble.
Japan’s Yen Takes a Hit
The yen’s drop came after the Bank of Japan’s latest policy meeting. They’re nudging away from yield‑curve‑control and opening the door for more muted policy moves. Their 10‑year bond target is still at 0%, but the ±1% band around zero is now just a reference point. If yields climb toward the upper limit, the BoJ might step back.
All this leads to an interesting twist: Japanese 10‑year yields spiked to 0.957%, a record since 2013. Meanwhile, the Japanese part of the iShares Core Japan Government Bond ETF (BRJ iShares Core Japan Government Bond ETF) fell to a new all‑time low of 2380. Yet, the yen itself didn’t find refuge from the decline against the big pillars.
Why the Euro’s Joyride Matters
While the dollar flops and yen slides, the euro’s gains reflect a broader confidence that, even amid cooling prices and a wary borrowing climate, markets are ready to bet on stronger currency footing. If the ECB sticks to its steady‑rate policy and monitors inflation carefully, the euro may keep this shape‑shift momentum going. That said, keep an eye on the Fed and BoJ moves – they can still stir the pot.
Humor aside, these currency swings remind us that money markets love to keep everyone on their toes – and that emotion can be as financially relevant as any headline.
