The dollar is strengthening significantly on the forex market today and is the strongest it has been in 24 years against the Japanese yen, for example. Multi-year highs also push the euro and strengthen against the British pound. According to analysts, the economic problems in Europe contrast with the strong American economy.
Shortly after 15:00 CEST, the dollar was adding about 1.5 percent to the euro and hovering near USD/JPY 144.90. That’s a 24-year high. The euro continued to lose slightly to it and was around 0.9905 EUR/USD, still close to the minimum for the period of its existence. The British pound then depreciated 0.8 percent to 1.1430 GBP/USD.
During the day against the yen, the dollar rose to close to 145.00 USD/JPY, its highest since August 1998. If it strengthens further, it is within reach of 147.13 USD/JPY, which was the high of 1998.
The British pound is just barely above 1.1413 GBP/USD and if it falls lower it will be the weakest since 1985, data from Refinitiv shows.
“This week, the increasing risks of a hard landing of the European economy are reflected in the growth of the dollar,“said Stephen Gallo, head of forex trading at BMO Capital Markets. A hard landing in the economy is defined as a sharp slowdown that is not without collateral negative effects on businesses and consumers.
According to Gallo, other risks in Europe also have an influence, for example the overall fiscal picture, stagflation and the tightening of monetary policy in a situation where the continent is very likely heading for an economic recession. Stagflation is a situation characterized by high inflation, stagnant demand and possibly high unemployment.
The European Central Bank (ECB) is likely to raise its key interest rate by 0.75 percent on Thursday, which would be more than recently expected, according to analysts. The Eurozone is struggling with a sharp increase in inflation, which reached a record 9.1 percent in August.
The European economy is adversely affected by disputes with Russia, which has indefinitely halted gas supplies to the European Union via the key gas pipeline Nord Stream 1. The West is in dispute with Russia over the invasion of Ukraine by Russian troops in February. “The only question when it comes to recession is how deep the recession will be.“said Gallo of BMO Capital Markets, quoted by Reuters, regarding the prospects of the European economy.
On the contrary, the American economy shows a different picture of development. The U.S.’s vast services sector unexpectedly gained strength in August, supporting views that the U.S. economy is not in recession, even as first- and second-quarter data showed a modest decline in gross domestic product (GDP). It means, among other things, that the US central bank (Fed) can continue to rapidly raise interest rates, which is good for the dollar.
Development of the currency pair EUR/USD (1-hour chart – H1):
Development of the currency pair GBP/USD (1-hour chart – H1):
Development of the currency pair USD/JPY (1-hour chart – H1):
Source: Reuters, ČTK, Refinitiv, MT4, BMO Capital Markets
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