Central banks provided volatility to the FX board these days, resulting in EUR/USD trading as low as 1.0358 and as high as 1.0601. The pair settled a handful of pips above the 1.0400 thresholds as dollar buyers juggled between recession fears and lingering demand for safety.
Deepening recession fears –
The US Federal Reserve had a monetary policy meeting, and as widely anticipated, policymakers decided to lift the fund’s rate by 75 bps, the largest hike since 1994. The main benchmark is now at a range of 1.5% to 1.75%. Chief Jerome Powell said that the next meeting could well be a decision between 50 bps and 75 bps, taking 100 bps off the table, which was initially read as dovish. Stocks rallied on relief, and the dollar fell, although the movements were short-lived.
The US central bank upwardly revised PCE inflation to 5.2% for this year, from 4.3% previously. Also seen at 2.6% in 2023, 2.2% in 2024. Growth for this year, on the other hand, has been downwardly revised to 1.7% from 2.8%. “The Committee is strongly committed to returning inflation to its 2 percent objective,” Powell said.
But it was not just the Fed. Central banks around the world are taking similar steps to tame inflation. However, lifting rates also mean higher borrowing costs for mortgages, credit cards, and other loans. And that is taking place while major economies struggle with slowing economic growth, as echoes of the coronavirus pandemic resonate. The Fed’s decision fueled fears of a US recession, pushing US main indexes to levels that were last seen in January 2021.
European jitters continue –
Across the pond, the European Central Bank called for an emergency meeting amid a sell-off in bonds. “The pandemic has left lasting vulnerabilities in the euro area economy which are indeed contributing to the uneven transmission of the normalization of our monetary policy across jurisdictions,” policymakers noted before announcing they would reinvest redemptions from the ECB’s emergency bond-purchasing program in a flexible way and design a new “anti-fragmentation instrument,” to prevent potential debt crises among EU member countries.
The ECB has pre-announced it would hike rates by 25 bps in July, the first move in over a decade, lagging behind most other major central banks. That is one of the main reasons the shared currency is unlikely to gather substantial momentum, regardless of a weakening greenback.
The European situation became more fragile four months ago when Russia decided to invade Ukraine. The attacks continue, resulting in energy and oil shortages that further disrupt economic progress in the Old Continent. The latest on the matter came from the European Commission, as President Ursula von der Leyen, alongside the leaders of several member countries backed Ukraine’s bid to join the EU, saying it should be given “immediate” candidate status. There’s no foreseeable end to the war, and that should add to EUR jitters.
EUR/USD Short (Sell)
Enter at: 1.04494