Key points:
- The EURUSD currency pair fell to a 20-year low on weak Ifo data.
- The Ifo data indicated that Germany is on the brink of a recession.
- However, the euro later recovered most of its earlier losses.
The EURUSD currency pair fell to a 20-year low after the disappointing German Ifo business climate data for September came in at 84.3, missing analysts’ estimates of 87 and the previous revised print of 88.6.
The currency pair later recouped most of its losses after speeches from multiple ECB policymakers reassured the markets of moderate rate hikes in the future. ECB speakers such as Luis de Guindos reiterated that the latest macroeconomic data would inform future rate hikes.
Also read: Multiple Time Frame Analysis (MTFA) – Forex Trading Strategy.
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The European Central Bank is already turning dovish as Europe’s largest economy, Germany teeters on the edge of a recession. Readers should remember that the goal of the rate hiking cycle is to trigger recessions.
The world’s leading central banks are pushing for a global recession to reset the global economy by crushing demand. As a result, many people will lose their jobs and be forced to cut spending, which should have the ripple effect of reducing prices.
However, the problem with this theory is that much of the current inflation is not driven by consumption. Instead, it is driven by the high cost of inputs such as energy prices and raw materials.
Therefore, hiking interest rates may not resolve the inflation problem but will likely drive millions of people into poverty since there are no guarantees that the lost jobs will return.
A good example is the job losses triggered by the COVID-19 lockdowns. Many people who lost their jobs never got new ones after the economies reopened.
Most central banks are always copying the US Federal Reserve in hiking interest rates despite their economies being on the brink of recession. However, the US has an advantage over every other country because the US dollar remains the world’s reserve currency.
The euro made a bold recovery earlier today, but the losses are not over. The dollar remains strong, and we could see further losses in the future.
*This is not investment advice.
EURUSD price chart.
Today, the EURUSD currency pair fell 125 pips (1.29%) to trade at 0.9558, from Friday’s closing price of 0.9683.