September 5, 2022 12:03 AM ET
By: AnalysisWatch
Assets fell sharply and steadily after the release of the Eurozone Harmonized Index of Consumer Prices (HICP). The European Central Bank's (ECB) preferred inflation indicator came in at 9.1% due to the energy crisis in the Eurozone. Escalating unscheduled maintenance on the Nord Stream 1 gas pipeline under the Baltic Sea due to leakage problems has triggered an energy crisis. To compensate, Russian energy giant Gazprom has announced plans to increase gas shipments to Europe via Ukraine, according to Politico.
This does not appear to be a permanent solution to energy supply. In addition, gas deliveries through Ukraine could be problematic as things are still complicated between Moscow and Kiev.
In addition, the ECB's interest rate decision, scheduled for Thursday, has kept investors on edge. The ECB has lagged on raising interest rates and is now forced to be extremely hawkish to cool down runaway inflation. ECB President Christine Lagarde is expected to announce a 50 basis point (bp) interest rate hike, bringing the critical rate to 1%.
As U.S. markets will remain closed due to the Labor Day holiday, risk sentiment will drive the currency market. Investors should note that the U.S. Dollar Index (DXY) hit a two-decade high of 110.09. The release of upbeat U.S. non-farm payrolls (NFP) data strengthened the DXY. This will support the Federal Reserve (Fed) in its tedious job of slowing inflationary pressures.
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