The year 2023 was another challenging year from the perspective of monetary policies of both countries. Rate increases were on a table during the first half of the year, while the year end brought some significant changes in rhetoric of monetary officials as well as monetary moves. The phrase “higher for longer” became the new wording of monetary officials of both the EU and the US. Although it looked that the two countries had similar monetary policies, the state of the economies were completely different. The US economy managed to sustain its strength even during the period of strong rate moves. The output of the country is expected to gain 2.8% in 2023 supported by strong consumer spending. The job market remained quite strong, reaching 3.8% as of the end of the year. Still, when it comes to 2024, some economists remain skeptical whether the strong US growth might be sustained in the future, especially taking into account the lag effect of monetary measures. There are still several analysts who are voicing “hard lending” for the US economy in the coming year or two, however, at this moment, there are no obvious signs for a potential of one such scenario. What is evident is that inflation, interest rates, GDP growth and the job market are going to be the most important fundamentals that markets will watch in the coming year.
On the other hand, the EU economy was the one that actually suffered from increased monetary interest rates, but it should also be considered the effects of geopolitical tensions on the European ground. The inflation in the EU peaked in May last year at 8.1%. Main cause for such high inflation were actually soaring energy prices, considering that the EU is an energy-import dependent country. With further increases of interest rates, the ECB managed to decrease inflation to 2.4% in November last year. The ECB stopped hiking interest rates as of the end of the year, however, many economists are still wondering whether the inflation might come back, especially when it comes to prices of oil, gas and energy. The winter is the most crucial period for the EU, where, for the moment, prices of these commodities remain relatively stable, but it is questionable what they will do in the future. The economy of EU countries was strongly hit by the environment of increased interest rates. The economic output significantly slowed down, leading the EU into a recession. Expected GDP growth for the year 2023 is only 0.6%. This growth was mainly supported through solid consumer spending. Several economists are expecting for the recession to continue through the year 2024 after which, the Euro Zone economy should pick up. During these challenges, the job market in the EU remained on relatively solid grounds, where the unemployment rate remained around level of 6.5%.
The EURUSD currency pair had a modestly volatile previous year. The currency pair started the year around 0.97, but due to monetary policy moves during the course of the year, the pair ended the year around the 1.10 resistance line. The monetary policies will continue to be the one to shape investors sentiment in the year to come. Both countries have their challenges, in which sense, we might witness strengthening of the USD, before its final reversal. Expectations of analysts differ strongly, which is quite usual when this currency pair is in question.
Important news to watch during the week ahead are:
Euro: Industrial Production for Euro Zone and Germany, Unemployment rate for the Euro Zone
USD: Consumer Price Index for December, Initial Jobless Claims, Producer Price Index for December
On the other hand, the EU economy was the one that actually suffered from increased monetary interest rates, but it should also be considered the effects of geopolitical tensions on the European ground. The inflation in the EU peaked in May last year at 8.1%. Main cause for such high inflation were actually soaring energy prices, considering that the EU is an energy-import dependent country. With further increases of interest rates, the ECB managed to decrease inflation to 2.4% in November last year. The ECB stopped hiking interest rates as of the end of the year, however, many economists are still wondering whether the inflation might come back, especially when it comes to prices of oil, gas and energy. The winter is the most crucial period for the EU, where, for the moment, prices of these commodities remain relatively stable, but it is questionable what they will do in the future. The economy of EU countries was strongly hit by the environment of increased interest rates. The economic output significantly slowed down, leading the EU into a recession. Expected GDP growth for the year 2023 is only 0.6%. This growth was mainly supported through solid consumer spending. Several economists are expecting for the recession to continue through the year 2024 after which, the Euro Zone economy should pick up. During these challenges, the job market in the EU remained on relatively solid grounds, where the unemployment rate remained around level of 6.5%.
The EURUSD currency pair had a modestly volatile previous year. The currency pair started the year around 0.97, but due to monetary policy moves during the course of the year, the pair ended the year around the 1.10 resistance line. The monetary policies will continue to be the one to shape investors sentiment in the year to come. Both countries have their challenges, in which sense, we might witness strengthening of the USD, before its final reversal. Expectations of analysts differ strongly, which is quite usual when this currency pair is in question.
Important news to watch during the week ahead are:
Euro: Industrial Production for Euro Zone and Germany, Unemployment rate for the Euro Zone
USD: Consumer Price Index for December, Initial Jobless Claims, Producer Price Index for December
