In global markets, the value of the dollar against a basket of currencies fell last week, with the euro moving away from its lowest level in 20 years as the European Central Bank may aggressively raise interest rates again due to high inflation.
The dollar index, which shows the movement of the U.S. dollar against the other six major world currencies, weakened by 0.7 percent last week, to 112.17 points.
At the same time, the dollar slipped 1.15 percent against the European currency, bringing the price of the euro to 0.9802 dollars.
However, the dollar strengthened against the Japanese currency by 1 percent, to 144.75 yen.
After two weeks of strong growth, the value of the dollar against a basket of currencies fell last week. However, at the beginning of the week, it did not seem that the situation would develop in that direction.
British Pound Under Pressure
The dollar index broke above the 114-point level for the first time in 20 years, mainly due to the weakness of the British currency.
On Monday, the pound’s exchange rate plummeted to a record low of 1.0327 dollars as the economic plan of the new government raised concerns in the market about the overstretching of British public finances.
The new government announced tax cuts and incentives for investments to support the economy, which would be financed by the largest borrowing since 1972.
However, critics say that these economic measures will benefit the wealthy, while public debt will rise sharply during a time of increasing interest rates.
A week earlier, the Bank of England raised interest rates by 0.50 percentage points for the seventh consecutive meeting and indicated that the economy is likely already in recession.
Nevertheless, in the second half of the week, the pound recovered, thanks to interventions by the central bank in the bond market to stabilize yields and messages that it would do what is necessary to stabilize the exchange rate.
Thanks to this, the pound’s exchange rate returned above the 1.11 dollar level by the end of the week.
Euro Strengthens, Inflation in Eurozone at Record High
Similarly, the situation with the euro developed. Primarily due to the turbulence of the British currency, the price of the euro fell at the beginning of the week to just 0.9528 dollars, a new lowest level in 20 years.
However, later the euro recovered all losses and strengthened against the U.S. dollar on a weekly basis.
The rise of the euro is attributed to expectations that the European Central Bank (ECB) will again raise key interest rates by 0.75 percentage points at its meeting in October as inflation in the eurozone does not relent.
This was first indicated by the data showing that inflation in Germany jumped to 10.9 percent in September, the highest level since 1996 and significantly higher than expected.
Then on Friday, it was announced that inflation in the eurozone reached 10 percent in September, a new record level since the bloc’s existence.
However, besides the ECB, the Fed is also likely to continue aggressively raising interest rates, so it remains to be seen how the situation will develop in the coming weeks.
Dollar Strengthened 17 Percent This Year
In the third quarter, the euro weakened by 6.5 percent against the dollar, marking its largest quarterly decline since the end of 2016.
Against the Japanese currency, the dollar strengthened by 6.7 percent in the third quarter, and by 8.3 percent against the British pound.
Since the beginning of the year, the dollar has strengthened by about 17 percent against a basket of currencies, putting it on track for its largest annual gain since at least the 1970s.
