On Monday Jerome Powell stated that the Fed will go for more aggressive rate hikes if needed, to curb inflation. Get your market update from RichardSnowFX here:
Rather hawkish remarks from Fed Chair Jerome Powell on Monday continue to reverberate throughout dollar pairs, as the greenback edges higher once more. On Monday Jerome Powell stated that the Fed will go for more aggressive rate hikes if needed, to curb inflation. He added the possibility of hiking more than 25 basis points “each time” if needed.
On the ECB front, we have already heard from Legarde Nagel and de Guindos that there are no signs of stagnation in the Eurozone economy. Nagel raised concerns over the risk of tightening policy too late and remains open to a potential rate hike this year. Rates markets currently anticipate just under 50 basis points of tightening before year end – a long way off the trajectory of the Fed with markets anticipating a further 180 bps this year.
The daily EUR/USD chart shows the failed attempt to trade above the 1.1150 mark in the aftermath of the Fed rate hike as the dollar softened slightly. Prices now appear to be heading lower once again, highlighting the recent low of 1.0805 which also happens to rest on the long-term trendline dating back to 2017.
A continuation in monetary policy divergence would raise the attractiveness of the higher yielding dollar in contrast to the negative yielding euro. If future Fed hikes are anywhere close to market expectations, the pair looks vulnerable to prolonged downside risks.
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