Inflation May Rise in the Eurozone, Causing ECB to Tighten: Central Banker
The United States and the Eurozone once again find themselves at odds. On one end, the FED is unfazed by inflation concerns as recent data showed a slight increment, meeting economists' forecast. Consequently, Joe Biden is proceeding with his $1.9 trillion stimulus package plan. On the other corner, there are worries that the Eurozone's inflation will rise. According to Jens Weidmann—the President of Germany's Bundesbank, Germany's inflation may exceed three percent by the end of the year.
Presently, central bankers will continue maintaining a loose monetary policy marked by record-low interest rates and more bond purchases. In the immediate-term, economists worry, inflation may rise above target levels, a possibility in the U.S. and a high-probability event in the Eurozone. Jens expects inflation to soar, especially in Germany, a move that will arm-twist ECB to intervene by raising rates or tapering bond purchases. He further added that the Eurozone has been in a low-inflation phase for an extended period, which won't continue for long.
Impact on the Euro:
Bullish. The Euro is steady, building on last week's gains as buyers defy gravity. A high inflation environment and hawks calling for tightening makes a case for Euro buyers who may subsequently further stretch gains versus the USD.
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