Even historically, August was the worse month for Euro, especially over the last fifteen years; this year, with the Ukraine war effects and weaker economic data from across Europe, the Euro sank to its lowest levels since the early 2000s when it was introduced as a multinational tender.
The latest comment from Ursula von der Leyen on Friday about energy prices, where she said that Europe needs to impose a price cap on Russian pipeline gas, drew a sharp response from the Russian president. Mr. Vladimir Putin answered that It is a stupid idea while we are committed to our agreements, and he continued that Russia also knows its right to cut off gas exports to Europe completely. However, soon winter comes, and it will test their willingness to cooperate with reduced heat supplies. So far, Russia seems OK with current conditions and is happy with this cash flow of RUB. European countries are willing to return to coal mining in some countries like Denmark and even revival of nuclear energy plants in others.
The war goes on, and the Europeans are getting more and more tired every day.
Overall, the war in Ukraine can become an act of victimization and collapse of the European Union. Ten years Euro bond yields reached a record high of 1.58% in June of 2022, compared with a record low of -0.46% in August 2021. In August, Euro 10 years yield was 1.17%. Check out now the below figure from Bloomberg, and spread between different European bond yields. Such a big difference and spread can cause huge disagreements among the members of the European Central Bank.
Thursday, September 8, the European Central Bank will announce its interest rate decision and monetary policies. The market expects the central bank to raise interest rates by 75 basis points. The primary refinancing rate, deposit mechanism rate, and marginal lending rate will increase to 1.25%, 0.75%, and 1.50%, respectively. In addition, President Lagarde will also hold a press conference just 30 minutes after publishing the announcement, which will be very important to follow. Despite the increased risk of recession in the eurozone, the central bank seems focused on controlling inflation. The latest data shows that eurozone inflation reached 9.7% and could exceed 10% in the coming months, primarily due to higher energy prices.
With these expected policies and decisions, Euro can get some strength in the short term, but to strengthen in the long term, we need to see more vital economic data and consumer expectations for more growth.