ECB interest rate policy makes euro increasingly weak

The American Central Bank (FED) has been considering phasing out monetary support measures for some time now. Central bankers in Europe are more cautious about this. This makes interest rate increases more likely in the United States than here in Europe, which provides support for the dollar. The euro-dollar exchange rate fell this week to €1,12, the lowest level since July last year. At the beginning of the month the rate was still €1,15. This is quite a significant downgrade in a relatively short period of time. The euro has also weakened considerably against the pound this month. 

US interest rate hike more likely 
In the background, the dollar is also supported by the positive labor market in the US. Employment rose sharply in October, resulting in fewer unemployed people. This development makes it more likely that inflation will rise further, making the FED more inclined to raise interest rates. For the time being, analysts assume that the FED will increase interest rates in the second half of next year. In the eurozone, an interest rate increase is further away. ECB President Christine Lagarde stated last week that circumstances are unlikely to arise in 2022 that justify an interest rate increase. This is despite the fact that inflation in the eurozone rose to 4,1% last month, double the level targeted by the ECB. The rising corona figures make the ECB reluctant to tinker with interest rates. 

Feed companies complain 
A weak euro has advantages and disadvantages. The weak currency is a boost for (agricultural) exports. The downside, however, is that overseas imports are more expensive. Animal feed companies and raw material importers, among others, have recently complained about the weak euro, which is partly to blame sky-high grain prices in Europe. High fuel prices are also reinforced by the weak euro.