As the European economy is still vulnerable and is faced with immense long-term challenges, the EU and national governments are expected to remain generous in doling out fiscal economic support. What can we expect in this area this year, and what other policy choices are in the offing that could significantly influence the markets?
In order to curb inflation, monetary tightening measures are expected, first in the US, later also in the EMU. What the market has already discounted in Fed rate hikes is an overreaction. The euro will benefit from this.
Based on the upward pressure on UK interest rates, the pound has recently appreciated. We wonder, however, whether the markets are discounting too many interest rate hikes, as the UK economy is being hit by omicron, Brexit and declining confidence in the UK government.