- Eurozone's common currency depreciated.
- Euro currency is threatened by economic growth concerns.
- RBNZ midweek policy update.
Euro under pressure amidst rising gas prices
The market is reflecting bearish signals for this currency pair. According to economists, recent developments in the energy markets of the Eurozone support the argument for additional euro weakness. Due to events in the energy market, which revealed that European benchmark power costs had risen above €500 for the first time, the Eurozone's common currency depreciated further in comparison to recent highs against the Dollar and the Pound. Over the next months, the developments pose a potential of piling on further pressure on the businesses in the area. According to Ole S. Hansen, Head of Commodity Strategy at Saxo Bank, the gas and power situation in the EU is getting worse, which is hurting the euro. In spite of persisting supply constraints from Russia, European countries kept up the pressure on demand to fill their storage tanks before the winter, driving up gas prices.
EUR/USD Price Chart
Euro is threatened by economic growth concerns.
The market is reflecting bullish signals for this currency pair. The European Central Bank has succeeded so far in preventing further significant downside in the EUR-crosses by maintaining its difficult balancing act of raising interest rates to combat multi-decade highs in price pressures while preventing fragmentation of sovereign bond markets (preventing peripheral debt yields from widening out relative to their core counterparts). But because energy inventories in the Eurozone are still low before the winter months, fears about growth are growing. The likelihood that the ECB will only be able to raise rates a few more times before the emphasis shifts to preventing a serious economic downturn is growing. Although the Euro's flaws have been contained, they nevertheless exist and pose a threat to the single currency.
EUR/GBP Price Chart
RBNZ midweek policy update
Following the Reserve Bank of New Zealand's (RBNZ) midweek policy update, analysts at investment banks Goldman Sachs and HSBC are watching for NZD depreciation. Markets anticipate that the RBNZ will increase interest rates by another 50 basis points to 3.0%, but any significant changes in the currency are more likely to be caused by the RBNZ's tone in its guidance. The meeting, according to Goldman Sachs, is expected to be one of the major developments for the foreign exchange markets this week, and the results are most likely to support their bearish NZ Dollar thesis.
GBP/NZD Price Chart
Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com