Last week, the European Central Bank (ECB) raised interest rates by a significant 75 basis points, which takes European short-term interest rates out of negative territory for the first time in years. This comes against a backdrop of elevated inflation and slowing growth in the region. In fact, the consensus has dramatically downgraded their 2023 forecasts for Europe to the point where they are close to expecting a recession. Because of impacts from the situation in Ukraine, growth is slowing much faster in Europe than in the US. This could result in fewer rate hikes from the ECB when compared to US Federal Reserve. Looking ahead to this week, on Tuesday we will get August CPI inflation data. In July, inflation came in at 8.5% and the consensus is expecting the August numbers to slightly tick down to 8.1%. Although inflation is trending in the right direction, it still remains dramatically higher than the Fed’s 2% target.
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