Foreign exchange, bonds, commodities – euro on the slide – economy

A rate hike in the US in March is becoming increasingly likely. More could follow. This strengthens the dollar and weighs on the euro, which falls to its lowest level since June 2020.

The prospect of an imminent rate hike in the US pushed the dollar higher on Thursday and, in turn, weighed heavily on the euro. The common currency fell well below the $1.12 mark and was quoted at $1.1133 in the evening. This is the lowest level at the beginning of June 2020. The previous evening, one euro had cost $1.1237. In view of the high inflation, the US Federal Reserve had signaled a rapid rate hike after its meeting the previous evening. Fed Chair Jerome Powell said policymakers stand ready for March tightening if conditions warrant. Analysts complained that Powell failed to provide important answers on the exact number of interest rate hikes and the reduction in the central bank’s balance sheet. “The speculation in the market about the speed and extent of the balance sheet reduction will not stop,” said Jochen Stanzl from the online broker CMC Markets. “If the European Central Bank were to follow the Fed’s faster pace, there would be potential for the euro to appreciate. But it hasn’t got that far yet,” said the analysts at Helaba.

On the bond market, investors pulled the ripcord in view of possible interest rate hikes and parted with government bonds. In return, the yield on ten-year German government bonds rose significantly and approached the zero percent mark again: it rose to minus 0.023 percent after minus 0.071 percent on Wednesday.

The stronger dollar made things difficult for the copper price. The industrial metal is cheaper at the top by almost two percent to 9731 dollars per ton. The appreciation of the US currency makes commodities more expensive for investors outside the US. Prices are also being weighed down by fears about the economy. Investors fear that tightening US monetary policy too much could put a damper on the economic recovery.

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