02.02.2023 02:58 PM
EUR/USD: brief summary and near-term outlook

This image is no longer relevant

Following the results of the first meeting of this year, which ended on Wednesday, the U.S. Federal Reserve decided to raise the key interest rate by 0.25%, which coincided with market expectations.

The Federal Reserve stressed that further interest rate hike is necessary since inflation remains high despite some easing in previous months: U.S. annual consumer inflation is currently at 6.5%, down from a 40-year peak of 9.1% reached in June.

Commenting on the decision and discussing the outlook for monetary policy, Fed Chairman Jerome Powell noted at a press conference following the meeting that "further rate hikes will be needed to achieve a sufficiently restrictive mood." In his view, "the labor market remains unbalanced," referring to the oversupply of labor demand, which sets the stage for further increases in wages for wage earners, which in turn is a prerequisite for a further run-up in consumer inflation. It, according to Powell, "remains well above our (the Fed) target," and while "inflation data over the past three months suggests a slowdown in the rate of growth, we need much more evidence to be confident that inflation is on a downward trajectory."

The dollar weakened significantly after the Fed's press conference, while U.S. stock indices rose significantly, and the positive dynamics of their futures continues today.

Today, two other major global central banks (UK and Eurozone) are holding their meetings.

The decision of the Bank of England will be published today at 12:00 GMT, and the ECB at 13:15 GMT.

In her speech at the World Economic Forum in Davos last month, ECB President Christine Lagarde said, "inflation expectations are not easing" and "the ECB will continue to raise rates." In her opinion, "inflation is too high," and "the ECB intends to bring it down to 2% in a timely manner."

Following last December's meeting, when the ECB's benchmark interest rate for loans was raised to 2.5% and deposits to 2%, the accompanying statement from bank management said that "interest rates will still need to increase significantly... in order to ensure that inflation returns to its medium-term target of 2% in a timely manner." Economists in December estimated that Eurozone inflation will be 6.3% in 2023 and 3.4% in 2024, still above the ECB's 2% target.

This image is no longer relevant

Other members of the ECB Governing Council also speak of the need for further monetary policy tightening. Bank of France Governor Francois Villeroy de Galhau said at the economic forum in Davos that the fight against high inflation in the EU is far from over, so he expects a further significant increase in interest rates in the coming months. Dutch central bank chief Klaas Knot also spoke about his vision of the situation and the need for further tightening of monetary policy, noting that the rate of adjustment of the value of 50.0 percentage points will be maintained and will not decrease, as some experts predicted.

Thus, following today's meeting, ECB leaders are widely expected to raise their base interest rate on loans to 3.0% and deposits to 2.5%.

At 13:45 GMT, the ECB press conference will begin, during which Lagarde will explain the decision and, probably, outline the Central Bank's plans for monetary policy for this year. If she again gives hawkish signals, then the euro could sharply strengthen. The soft tone of her statements will have a negative impact on the euro.

This image is no longer relevant

As of writing, the EUR/USD pair is trading near the 1.0985 mark, declining from the new local and 10-month high of 1.1032 reached at the beginning of today's trading day.

From a technical point of view, EUR/USD has reached an important long-term resistance level at 1.1000 and continues to develop upward dynamics towards the 1.1130 key resistance level, the breakdown of which will finally bring the pair into the long-term bull market zone.

Jurij Tolin,
Analytical expert of InstaForex
© 2007-2023
Euro vs US Dollar
Select timeframe
Start trade
Start trade
  • Grand Choice
    Contest by
    InstaForex always strives to help you
    fulfill your biggest dreams.
  • Chancy Deposit
    Deposit your account with $3,000 and get $8000 more!
    In March we raffle $8000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
  • 30% Bonus
    Receive a 30% bonus every time you top up your account

Recommended Stories

The meetings of the ECB, the Bank of England, and the Fed are over. What conclusions can be drawn?

The market has been anticipating the central bank meetings in March for a while, and in recent weeks, analysts and market participants have been actively arguing about how much this

Chin Zhao 18:44 2023-03-23 UTC+2

EUR/USD: Bullish rally slows down

The banking crisis has done some of the work for the Fed. Even Jerome Powell admitted that the series of bankruptcies has the same effect on the economy as raising

Marek Petkovich 15:30 2023-03-23 UTC+2

Australian dollar found its place in Forex

The stronger the system, the more opportunities the central bank has to raise rates. The stronger its currency. In this regard, the Australian dollar looks attractive. Australian banks are well

Marek Petkovich 13:37 2023-03-23 UTC+2

Fed now has less work to do, says Fed Chairman Powell

U.S. Federal Reserve Chairman Jerome Powell stressed Wednesday that the Fed may now have less work to do. During the press conference, Powell leaned towards a dovish stance

Irina Yanina 11:41 2023-03-23 UTC+2

ECB stands firm on its position

Euro rose as market players were pleased over the Fed's interest rate decision yesterday and statements made by ECB officials. The latter is increasingly convinced that the eurozone banking system

Jakub Novak 11:38 2023-03-23 UTC+2

Fed will continue to pursue its inflation target

Dollar slipped a lot after the Fed announced its decision on interest rates. Although the accompanying statement was very much about how the recent turmoil will not change the committee's

Jakub Novak 11:15 2023-03-23 UTC+2

Jerome Powell fails to persuade investors

Yesterday, the Federal Reserve increased interest rates for the ninth time in a row. In its statement, the FOMC noted that further rate hikes were not out of the question

Jakub Novak 09:08 2023-03-23 UTC+2

EUR/JPY. Lagarde rushes to the rescue: the euro has strengthened its position amid the rhetoric of the ECB head

ECB President Christine Lagarde addressed the members of the European Parliament's Committee on Economic and Monetary Affairs. Her rhetoric supported the euro, which strengthened its position throughout the market –

Irina Manzenko 22:50 2023-03-22 UTC+2

The dollar will be saved and then it will drown

Shocks come and go, but markets remain. It has been a long time since we have seen such shocks as in March. Investors raised the federal funds rate ceiling after

Marek Petkovich 22:50 2023-03-22 UTC+2

Will gold and other commodities resume rising on the back of the Fed's "soft" rate decision?

After gold started to rally exactly two weeks ago, it entered a bearish correction this Monday and Tuesday, but then it started to rise again, albeit a moderate one. Investors

Pati Gani 22:49 2023-03-22 UTC+2
提出您的问题,用 在线帮助.