Investors fear inflation and the impact of the pandemic

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In relation to a huge release of funds in countries all over the world, especially the United States, along with deepening government deficits, there are growing concerns regarding future inflation, economists and financial market analysts stated. The main focus of investment strategists and analysts around the world was the fact that the US government, led by their new President, Joe Biden, enforced a record aid worth US$ 1.9 trillion to fight Covid-19.

This record sum of aid is primarily intended to prevent further economic losses to the US economy, but also to directly help large sections of the US population who find themselves in very difficult circumstances. It should also – with direct investments – help the US economy to grow further. According to experts, however, this also means an increased inflation rate, and according to some economists, the inflation rate can increase very dynamically or abruptly, which can have a rather negative effect. However, current US inflation data do not reach the inflation targets set by the US Federal Reserve (Fed) at 2% p.a., as current US inflation is 1.7% year-on-year. The current situation in Europe and in the Eurozone countries is even more distant from the inflation target of the European Central Bank (ECB) with inflation rate reaching 0.9% year-on-year in February 2021.

The global financial market reacted to these facts and primarily there was a reaction regarding Forex trades on the international foreign exchange – Forex market, where the global currency pair EUR/USD recorded a decline in the exchange value of the Eur (EUR) against the US dollar (USD). On 12 March 2021 at 9:41 am CET, this global currency pair EUR/USD traded at a mutual exchange rate of US$ 1.193 per EUR, with a daily decline of the EUR by -0.451% against the USD. Overall, on the global financial market, the exchange rate of the USD rose again and, according to the US Dollar Currency Index (DXY), which compares the USD with six other major world currencies, the USD was seen at the price level 91.82 with the current daily growth of +0.44%.

According to analysts, this situation was caused by the approval of a record US$ 1.9 trillion aid for the US economy, but also by yesterday’s speech by US President Biden calling on all Americans to be vaccinated against Covid-19. In this context, he highlighted very tactfully and diplomatically the fact that the US government is sending US$ 1,400 to each American to help with pandemic, and it must therefore be the duty of everyone in the US to prevent further spread of this viral infection by vaccination. US Independence Day, 4 July, could also be a day of victory over the virus. This fact significantly affected investor sentiment and financial market prices mostly strengthened. However, investors’ concerns remain precisely about the sharp rise in inflation, along with the economic effects of previous measures, which have reduced or even halted a number of activities and virtually crippled tourism worldwide.

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