It is time for my traditional yearly post to find out which fiat could beat the conventional store of value this year.
Let us see below how you predicted the future back at the end of December 2021.
The U.S. dollar was again the favorite bet for many of you. The next choice was the British pound, likely because it finished second in 2021. Among the top three bets, the Canadian dollar was an interesting choice that could be justified by the previous top ranking.
This time I changed the list of currencies to include only the top 5 currencies based on real foreign exchange turnover according to the Bank for International Settlements as per the table below.
Source: Bank for International Settlements
The following top 5 fiat currencies are listed in the table above: U.S. dollar (USD), euro (EUR), Japanese yen (JPY), British pound (GBP) and Chinese yuan (CNY). Continue reading "Top Fiat vs Gold in 2022: Focus on Inflation"
No doubt the most dramatic event of the FX market this past week was the ECB decision. Draghi, it seems, has finally "cut the mustard." He delivered a powerful response to the latest softness in Eurozone inflation. Essentially, the ECB expanded its QE program to €80Bln of purchases a month and pushed the deposit rate lower into negative territory. But if you expected these moves to play right into the bears' hands (as it has in times past) you might be in for a surprise.
Eurozone: The Good vs. Bad
When the Euro ended up higher in the aftermath of the ECB decision many were caught off guard. Some claimed the Euro's reprieve was the result of Draghi's rhetoric which suggested no more "bazookas" anytime soon.
But what seems more probable is that Draghi's words might just be the consequence rather than the cause. That is the consequence of some green shots that had started to appear in the latest Eurozone data. Those readings suggested that printing money until the apocalypse was not necessarily needed. That's what we call the "good news."
Below are two important indicators for the Eurozone; the balance of trade and industrial production. Both indicators are keenly scrutinized for this export-oriented region.
Chart courtesy of Tradingeconomics
The balance of trade figure has upticked higher and reaffirmed its rising trend from 2012. This suggests that the Eurozone exports more goods than it buys. Continue reading "Euro Out Of The Woods?"
For the investors who are watching the Euro, its latest behavior might appear bewildering. After all, the ECB, slightly undershooting expectations, still increased its target asset purchases to roughly €1.5tn. At the same time, the ECB cut the deposit rate to -0.3%. And let's not forget the goings on over on the other side of the Atlantic. There, the Federal Reserve is gearing towards its first rate hike in almost a decade. What, then, could possibly incentivize investors to buy Euros? And can it last?
Draghi's Words Hit a Nerve
When investors expect more central bank easing, they also expect the obligatory rhetoric. But what they hate is when the rhetoric is of a very specific sort. In this case, it is when a central banker stresses the limitations of monetary stimulus. Yet, in practically the same breath, they drive home the need for more government input. And essentially, that is exactly what Mario Draghi said.
Now, when the Fed unleashed similar rhetoric, it was seen as a signal that its ammunition might be running out. Earlier this year, the BoJ had made a similar statement in an attempt to lower expectations of more stimulus. Continue reading "Why The Euro Is Rising And Why It Can't Last"
The coming weeks could be pivotal ones for the Euro. This time, it isn’t because of a threat to its existence or a member state’s bankruptcy. No, this time, it will be because of the actions of Mario Draghi and the European Central Bank. The ECB chief has the power to ignite the momentum desperately needed to awaken the Eurozone from its economic stupor. Simply put, Mario Draghi must push the Euro below 1 Dollar.
The Eurozone Lately
When we examine the latest trends in the Eurozone, we do see some positive signs. Exports have recovered, and industrial production has increased, as well. On the consumer front, retail sales have also been accelerating nicely. On top of that, the Eurozone’s GDP growth rate has been inching up, albeit at a very moderate pace. Continue reading "Mario Draghi Must Act Now"
Is the short bet on the Yen over? Well, maybe not when it comes to trade vs. the Dollar. But as far as other weaker currencies, that's a different story. As it relates to the Euro, then indeed, the long bet on the EUR/JPY might be over. And here's the reason why.
Inflation might be coming back
That's a rather straightforward statement, but the Bank of Japan believes that inflation is inching higher. And while it's not as clear-cut a case a, let's say in the US, still there is a basis for it. When calculating Japan's inflation, excluding volatile prices such as food and energy, inflation gained 0.6%. Now, while that's still low, it's a move in the positive direction.
Moreover, a quick look at the inflation figures per segments and you can see most segments have experienced price increases. That is a mildly hawkish sign. It must be pointed out that the BOJ is about to change the way it measures core inflation. Going forward, the BOJ will publish core inflation figures, calculated both with and without energy prices. However, the BOJ will focus on core inflation excluding energy prices. Previously, by including them, it distorted the inflation figures into the downside. Continue reading "Are All Yen Bets Off?"