The minutes from the European Central Bank's September policy meeting revealed that policymakers were concerned about rising prices throughout the region and predicted that inflation would likely remain above the central bank's target for a considerable amount of time. They also stated that concerns about growth should not prevent a necessary increase in interest rates. In addition, officials noted that the central bank's reaction to upward departures from the ECB's target should be as forceful as it had been when inflation had been too low, as inflationary pressures brought on by the euro's depreciation may intensify further and lower exchange rates offered little support for economic activity in a setting where global supply bottlenecks and shortages were still present.
Seasonally Adjusted GDP in the eurozone exceeded forecasts and increased by 0.8% and 0.7% in the second quarter compared to the previous Q in the euro area and the EU, respectively. However, uncertainty and risk are on the verge for the next quarters. European Central Bank (ECB) Vice President Luis de Guindos said "We are seeing that in the third and fourth quarters there is a significant slowdown and we may find ourselves with growth rates close to zero," de Guindos told a conference.”
The invasion of Ukraine by Russia would likely result in serious energy uncertainty for the entire European Union (EU) in the near future, placing the economy in danger of a highly probable recession by Q4'22 or by the start of 2023. Before the invasion, Russia was the EU's main supplier of crude oil, natural gas, and solid fossil fuels. Since the invasion, the EU has gradually reduced its reliance on Russian energy products. The approach has led to a sharp spike in electricity prices. On August 26, the benchmark price of natural gas in Europe increased to €343 per megawatt-hour, which is 30 times higher than it was two years earlier. European leaders are debating a number of solutions. Rationing of fuel and the separation of gas and electricity. Potentially urgent solutions include price regulations, the decoupling of electricity from gas prices, and other changes to the energy sector. Economists anticipate one or more difficult winters, and they have revised downward their estimates of the EU's overall growth in light of a possible energy shortfall. However, Luis added, the ECB's estimate is that economic output would "stagnate" in the latter part of this year and early in the following.
Last week saw the strongest 5-days for the Euro since late May, with a rise of around 1.4 % against the US Dollar. The less aggressive statements made by Federal Reserve members on Friday may have helped the EUR/USD. This occurred when decision-makers entered a period of silence, providing investors with some thought-provoking remarks to ponder before the central bank's upcoming announcement of its interest rate policy in November. But that won't happen for a few more weeks. The European Central Bank, which sets interest rates on Thursday, will be the main topic of discussion for the pair EUR/USD. The ECB is expected to continue with its most aggressive tightening cycle in history despite inflation ravaging the Euro-Area.. In September, the ECB increased interest rates by 75 basis points which was more than was anticipated. The Main Refinancing Rate and Deposit Facility Rate are anticipated to increase by 75 basis points each to 2% and 1.5%, respectively.
Even if there are growing concerns about an economic recession in the Eurozone, policymakers are continuing to tighten. For example, on Friday, preliminary Q3 GDP figures for Germany are expected to reveal a considerable deceleration from Q2. German inflation figures will also be broadcast in the meantime. In October, the CPI is forecast to be 10.1% y/y. Another Eu country that Is expected to see a slowdown In the GDP growth rate Is France which Is expected to post 0.2% versus the previous reading of 0.5%.
At the end of the day, tomorrow will set the pace for the next month and will lead Investors to take their Investing decisions.
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