What an unbelievable year, 2021 will go down in history as one of the best years of Wall Street, this after the fantastic year of 2020, which saw Wall Street plummet in the wake of the COVID pandemic, to recover from that fall in the blink of an eye and register new historical highs, all and twelve months. But the year that is just ending is not far behind the previous one, not only because it faced the uncertainties of the mega vaccination operation, the new waves of COVID strains, but especially the unexpected consequences that emerged in the middle of the year, when the support for Unemployed citizens began to be reduced, such as the reduced availability of workers to return to the workplace, as well as the use of raw material and semiconductor producers, who did not resume production as quickly as desired, thus benefiting from an increase unusual pricing.
This rise is generating a harmful effect that has long been forgotten, an out-of-control inflation that in the US is close to reaching triple the desired level and that would hardly be anticipated as a reality, given the maturity that the main economies have, and instruments created to maintain it at around 2%. But central banks had to make a choice in the last half of the year, act soon or leave a stimulus cushion to hold the economy back in a still-tough phase following the Delta variant. With the end of the year, the Fed was even forced to act, first with the announcement of the reduction of stimuli and soon after, given the escalation of inflation, to correct for a more accelerated step of normalization of the monetary policy.
The ECB, on the other hand, is still late in this process, despite inflation in the euro zone having risen to 4.9% in November, after 4.1% in the previous month, a level that is not expected to be reduced in the coming months, as 2022 will be marked by the implementation of fiscal stimuli in Europe, which promises to further heat pressure on prices. The difference in pace between the main central banks justifies the registration of the EUR/USD, with the US currency clearly gaining against the single currency once it became clear that the Fed was going to start acting and the ECB did not.
This relative strength of the dollar may remain in 2022, however it will not be as evident and there may even be a reversal of direction if the ECB opens the door to containment measures.
