Recession signals are getting real, European currencies are falling together

Jakarta, CNBC Indonesia -Currency pounds and the euro weakened against the United States (US) dollar following the increasingly confirmed signs of recession in European economic data.

The euro weakened against the US dollar, to 1.0499 per US dollar, while the pound sterling weakened to 1.2204. This is different from the global stock market which slightly strengthened after a massive correction this week amid the weakening of world oil prices.

Prices of Brent and West Texas Intermediate (WTI) crude have fallen in recent weeks, even though sanctions on Russian crude oil exports are still in effect and China is increasingly free from regional quarantines.lockdown).

The condition of the major European currencies is seen as a clearer indicator. rather than the stock market, in showing the level of economic health of a country compared to a stock market that contains many multinational companies.

“The global economy continues to be impacted by severe pressure on the supply side, which is driving inflation higher and depressing economic growth,” Citi analyst Nathan Sheets said, as quoted by AFP, when he put the chance of a global recession at 50 percent.

Economic growth in the euro zone was further depressed in June, according to survey results, amid rising prices for major world commodities that clouded prospects for economic recovery after the Covid-19 pandemic.

The Purchasing Managers’ Index (PMI) version of S&P Global in the Blue Continent region as of June was depressed to 51.9 compared to the previous position at the level of 54.8 as of May.

A reading above 50 still indicates growth. However, the data shows that private sector activity in the UK is now at its lowest level in more than 1 year due to rising inflation.

The chance of a recession is also exacerbated by the trend of increasing benchmark interest rates in many countries to combat inflation.

Federal Reserve Chair Jerome Powell on Wednesday stated that a recession is “certainly possible” while inflation has clearly surprised with the drastic gains of recent years and remains open to further gains.

The US central bank has raised its benchmark interest rate by 75 basis points (bp) and is expected to repeat it in July. As a result, according to Deutsche Bank Managing Director Christian Sewing, there is a 50% chance that a contraction will occur next year.

Elon Musk, JP Morgan boss Jamie Dimon and economist Nouriel “Dr Doom” Roubini have given similar projections, in which the global economic outlook will still be dragged down by the energy turmoil amid sluggish demand.

CNBC INDONESIA RESEARCH TEAM

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