09.02.2023 09:00 AM
EUR/USD: the dollar is aware of inflation risks, and the euro's far from hitting highs

This image is no longer relevant

The US currency remains neutral after Federal Reserve Chairman Jerome Powell's speech. However, at any moment, the USD could face increasing risks. The European currency is trying to rise to new peaks again, but is falling back to its previous positions.

The speech of Powell was the milestone event of the week. As a result of this meeting, the greenback's reaction was mixed: from explosive growth to a deafening drop. EUR/USD fell to 1.0670, and corrected to 1.0765 after Powell's speech. According to analysts' observations, the current rebound was large - within one figure. Then the pair returned to the lower limits of the range, reaching 1.0730. On Thursday morning, February 9, EUR/USD was trading at 1.0739, trying to overcome the price barriers.

This image is no longer relevant

Against this backdrop, experts admit a curtailment of risk appetites in the market. Such a reaction has been repeatedly recorded following the Fed meeting: in the first hours after Powell's speech, markets rose and then promptly fell. In such a situation, analysts expect the EUR/USD pair to make new lows and to move to the low of 1.0500 in the mid-term.

Economists at Rabobank maintain their three-month EUR/USD forecast of 1.06. "On the back of the remarks from Powell, Friday's labor data release and our ongoing concerns surrounding the impact of tight labor market conditions, we have revised up our forecast for the top of the target range for the Fed funds rate to 5.5% from 5.0%. This underpins our expectation that EUR/USD will dip back to 1.06 on a three-month view and potentially to 1.03 in six-months."

"Given that the market is positioned long EUR, we expect the upside for the EUR to remain capped." Against this background, the euro's growth will be limited, analysts believe. The current dynamics of the greenback and the euro will be seriously affected by the macro data from the US and Germany, which will take place on Thursday, February 9. The markets will focus on the upcoming reports on the number of initial jobless claims in the US. According to preliminary estimates, this figure increased by 7,000, reaching 190,000.

The Fed's current monetary policy is still important to market participants. Traders and investors are expecting another key rate hike next month. Most analysts (90.8%) agree with them and expect an additional rate hike of 25 bps (to 4.75%-5%).

The Fed chair did not mention anything new about the current monetary policy, but stressed that the central bank's position remains hawkish in many respects. Powell said that he expects to see declining inflation in housing soon, but noted that prices remain stubborn for services. As for the U.S. labor market, it remains strong. The agency assumes that the employment rate in the U.S. will stabilize and it will be possible to restrain inflation without a significant increase in unemployment.

At present, the Fed is focused on restoring price stability, Powell said. At the same time, restrictive monetary policy must be maintained in order to normalize the situation. "What we said at the meeting was, was that ongoing rate increases will be appropriate," the Fed chairman added.

The financial markets remain uncertain as to whether the Fed will be able to achieve its 2% inflation target without harming the labor market and economic growth. Earlier, the Fed chair said that the agency controls the current level of inflation, as well as "has the tools to achieve our 2% goal over time." "We're trying to achieve a stance of policy that is sufficiently restrictive to bring inflation down to 2% over time, and we don't think we've achieved that yet," Powell said.

"Inflation in the United States is closely related to things that happen here, including the balance between supply and demand," Powell said. "While inflation remained elevated, we are seeing encouraging signs that supply-demand mismatches are now easing in many sectors of the economy," U.S. Treasury Secretary Janet Yellen said. Against this backdrop, the Fed's positive statements give market participants confidence. "The Fed has the ability to shield the financial markets or the economy from the consequences of moving too slow," Powell concludes. In the current situation, analysts expect the greenback to strengthen and the euro to stabilize.

Larisa Kolesnikova,
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

Oil sells off at peak levels

On Friday, oil showed the largest weekly drop in more than a year amid a loss of confidence in the banking sector among investors. The oil market fluctuated

Egor Danilov 15:00 2023-03-19 UTC+2

USD/JPY - dead loop

At the middle of the working week, the USD/JPY pair made a sharp turn to the downside and plunged into the abyss. Many analysts warn that the major

Аlena Ivannitskaya 09:17 2023-03-16 UTC+2

US stock market closes higher, Dow Jones gains 1.06%

At the close of the New York Stock Exchange, the Dow Jones was up 1.06%, the S&P 500 was up 1.68% and the NASDAQ Composite was up 2.14%. In addition

Thomas Frank 03:18 2023-03-15 UTC+2

US stocks fall, but less than expected

The main US stock indexes fell according to the results of Monday's trading, which was quite expected amid the situation in the banking sector. Nevertheless, there was no significant decline

22:49 2023-03-14 UTC+2

Crisis in the oil market is gaining momentum

Oil prices are rapidly falling this morning. The fall has already become quite tangible, but the most dangerous thing is that there is nothing to stop it yet. The catalyst

Maria Shablon 09:29 2023-03-14 UTC+2

Inflation decides. Five scenarios for the dollar depending on the US CPI

Yesterday, the dollar experienced a loud sell-off on all fronts as the market was hit by a wave of speculations over the less hawkish policy of the Fed. Today's

Аlena Ivannitskaya 08:53 2023-03-14 UTC+2

Back to work: the new week starts for oil with a positive

Monday morning was quite successful for the oil market. Crude oil prices were rising, which is largely supported by the U.S. dollar. The dollar retreated amid the latest news

Maria Shablon 09:43 2023-03-13 UTC+2

SVB collapse: the dollar is confused

During the weekend, the market was shocked by news about the SVB bankruptcy. The strongest shock in the U.S. banking sector since 2008 was a logical consequence of the aggressive

Аlena Ivannitskaya 08:54 2023-03-13 UTC+2

US stock market closed lower, Dow Jones down 1.07%

At the close of the New York Stock Exchange, the Dow Jones was down 1.07% to hit a 3-month low, the S&P 500 was down 1.45% and the NASDAQ Composite

Thomas Frank 03:23 2023-03-13 UTC+2

EUR/USD. The dollar scares the euro into parity

The dollar could not hold on to its highs, but that doesn't mean there won't be another attempt to break through the 106.00 level of the index. We have critical

Anna Zotova 22:52 2023-03-09 UTC+2
提出您的问题,用 在线帮助.