Misery – defined as the unemployment rate plus inflation – is falling sharply in the US and more slowly in Europe. Kit Juckes, Chief Global Currency Strategist at Societe Generaleanalyzes the implications for financial markets.
Can it be painless to beat inflation?
Risk assets would clearly benefit from an exit from inflation without a recession. The dollar no. Nor would the dollar benefit from a mild recession that would allow the European misery to dissolve without too much pain (and the ECB to continue to rise after the Fed was done).
However, the risk that the Fed will be encouraged to pause, then turn around and stop raising rates, only to see tight labor markets trigger a further spike in core inflation next year, is now a real risk. This outcome, which would derail the European recovery and force the Fed to drive the economy into recession by the end of 2024, may be a tail risk, but one big enough to underpin future currency volatility.
We believe the downtrend in volatility is over and markets are likely to be more choppy.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
