- Despite US Central Bank Governor Jerome Powell's assertion of the possibility of raising US interest rates throughout the year 2023 until inflation is contained, the EUR/USD currency pair continued its upward path.
- Gains affected the 1.0990 resistance level, which is closest to testing the psychological resistance 1.1000.
- This confirms the bulls' control of the trend.
- It settles around its gains at the beginning of Thursday's trading.
Jerome Powell, US Central Bank Governor stated, “Inflation pressures continue to rise, and the process of returning inflation to 2% still has a long way to go.” However, last week the Federal Reserve kept US interest rates unchanged after 10 consecutive hikes, so it may take time to gauge the impact of higher borrowing rates on the economy.
Monetary policy front for the eurozone
European Central Bank Governing Council member Peter Casimir said the European Central Bank can only pause interest rate hikes at its meeting in September if core inflation is certain to be under control. He told reporters at a news conference in Bratislava that if the underlying pace of price increases continues, there will be further monetary tightening. "We must have a high level of certainty, based on actual data, that shows that our core inflation is under control in the near future," he said when asked about the likelihood of the increases stalling in September. And “If core inflation continues to be intransigent, I think it makes sense that votes wanting another increase in September will prevail.”
Casimir added that the September decision is still uncertain. Where he said: “Primary inflation is affected by secondary factors – wage growth and profit margins – that can lead to a continuous price growth spiral, which is what we fear most.” and “we must act no matter what it does to economic growth or unemployment.” The Slovak central bank governor added that sales under the APP program are not currently on the agenda. "We continue to shrink the balance sheet of the euro system with great success, and this does not cause any additional doubt or difficulty in liquidity, and this is the key," he added.
EUR/USD Forecast
EUR/USD bulls are facing a shock as the European Central Bank decides to cut interest rates in 2023 according to ABN AMRO
The EURUSD exchange rate recovery has effectively ended, according to new analysis by European lender and investment bank ABN AMRO. The Dutch-based bank says the European Central Bank (ECB) will surprise the markets by cutting interest rates before the end of 2023, but the US Federal Reserve will not follow suit until later in 2024. Georgette Boyle, senior “For the ECB, we are less hawkish in 2023 and much more pessimistic for 2024,” ABN AMRO forex strategists said, announcing the latest changes in its bank's foreign exchange outlook.
If true, this would cause divergence in the future of monetary policy at the Federal Reserve and the European Central Bank, to the detriment of those looking for a stronger euro. This view is not unanimous, which makes it even closer. For example, we recently reported on analysis from UniCredit that revealed that EUR/USD will embark on a more sustained rally in 2024 as the Fed cuts interest rates faster and by a larger amount than the European Central Bank.
A rate cut by the European Central Bank ahead of the Fed, confounding consensus expectations, would put the dollar on track for a prolonged period of outperformance against the eurozone single currency.
Therefore, ABN AMRO now expects the last US rate hike of 25 basis points to be delivered at the July meeting. A recession in the US is expected to begin in the last quarter of the year, and the first cut will come in the first quarter of 2024. “A strong rate-cutting path from the Fed is still expected in 2024,” but less by an amount, the bank analyst added. 50 basis points from what we originally had,” and “we now have a total of 175 basis points of interest rate cuts in 2024.”
By contrast, the ECB will raise the deposit rate to a peak of 3.75% (consensus sees more) and the first rate cut will come at the end of 2023, says ABN AMRO. For 2024, the Bank expects a total of 150 basis points of interest rate cuts by the ECB compared to the consensus forecast of 75 basis points from a higher level.
Based on this forecast, “we have lowered our forecast for EUR/USD,” “First, we no longer have a Fed rate cut this year and smaller overall rate cuts in 2023-2024. This is positive for the US dollar. Second, if the ECB actually starts cutting interest rates in December - contrary to market expectations - the euro will take a hit. Third, aggressive rate cuts by the European Central Bank in 2024 will put more downward pressure on the euro than Fed cuts on the dollar.”
She adds that speculative positions in the euro are “extremely large” and if investors partially abandon their views on the rise of the euro and liquidate part of these positions, “the euro will also come under pressure.” ABN AMRO has lowered its EUR/USD forecast to reflect the above dynamics, but there is a risk that the downside is greater than this forecast indicates.
Euro predictions against the dollar today:
- The bullish trend of the EUR/USD currency pair will increase in strength by testing the psychological resistance level of 1.1000.
- A lot that breaching the resistance 1.0930 would support that, which is what is already happening now.
- If the bearish pressure continues on the dollar, the bulls may find an opportunity to test the resistance levels at 1.1090 and 1.1130, respectively.
On the other hand, and over the same period of time, breaking the support level at 1.0865 is a real threat to the current bullish rebound.
The EUR/USD will be affected today by the announcement of the number of US jobless claims and the testimony of US Central Bank Governor Jerome Powell, which is usually a confirmation of what was stated in yesterday's testimony.
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