Inflation across the Anglosphere has been a massive consideration for economists, traders, businesses and the public for a number of months now, and the resultant strain is being felt by everyone in all areas of society.
The figures across the United Kingdom and United States, two nations which are home to two of the most important tradeable major currencies, have been in focus for quite a long time, and continuing to move higher. US inflation is at a 40 year high, standing at 7.9%, and inflation across the pond in Britain is at 6.2%, however the elephant in the room is the combined level of consumer price inflation (CPI) that has occurred in the European Union.
When looking at the inflation percentage across the entirety of the member states of the European Union rather than on an individual country basis, it has risen by 7.5& in the period between the beginning of this year and March 2022, which is not only much higher than the already steep inflation in the United Kingdom, but represents a record as it is the biggest increase since the euro was launched more than two decades ago.
The European Central Bank, which is the issuer of the Euro, has not increased interest rates despite inflation being over 1% higher than that in the United Kingdom, whereas the Bank of England has increased interest rates three times since December 2021 when it stood at 0.1% and is now at 0.75%.
Of course, that is still very low compared to other historical periods in which inflation and economic catastrophe has caused interest rate rises, but it is a direct reaction to the squeeze that has been put on businesses and lenders during a time at which operating costs and capital repayment costs are at a 30-year high.
Central banks across the West are under pressure to raise interest rates which is a method used to counteract spiralling inflation, therefore there will no doubt be people from all walks of life watching the European Central Bank’s movements given that inflation across the Eurozone is at almost the same heights as it is in the United States.
Currently, the euro is relatively stable, it stands at 1.20 against the British Pound, however given that the US dollar and the British Pound are both facing the same challenges as the Euro, it is perhaps easy to see why the value between them does not fluctuate much. All three currencies are faced with the same inflationary challenges, the potential replacement by Roubles as a method of paying for and settling certain commodities supplied by Russian energy companies, and market volatility driven by companies cutting back on their services or exiting the market en masse.
At the moment, it is looking as though the majors will be volatile against other asset classes or exotic currencies rather than against each other, as inflation is an ailment that has been almost equally affecting the European, British and American markets.