02.02.2023 08:37 AM
The euro got a boost after the Fed meeting: the flight continues

This image is no longer relevant

The European currency, unlike the American one, demonstrated stunning growth again, breaking through a psychologically important level of 1.000. The greenback has to work hard to "save face" and maintain its status as the world's leading currency.

After the results of the Federal Reserve meeting, the greenback slowed down a bit, but rising further is out of the question. On Wednesday evening, February 1, the dollar persistently fell, while the euro climbed to 1.0907. According to analysts' observations, for the first time in the last 10 months, the single currency peaked at 1.1000 and then successfully overcame this barrier. On the morning of Thursday, February 2, the EUR/USD was near 1.1016, surprising the markets with the weak dollar and the euro climbing to new highs.

This image is no longer relevant

At the end of the meeting, as expected, the Fed raised the federal funds rate by 25 basis points to a target range of 4.5%-4.75%—the highest level since early 2008. Earlier, the central bank slowed the pace of rate hikes: at its meeting in December 2022, the rate was increased by 0.5 percentage points, and before that it had been increased four more times by 75 basis points. The next Fed meeting is scheduled for March 21-22.

According to the central bank's statements, it needs to deliver a 'couple' of more rate hikes to get to that level they think is appropriately restrictive, which will help to achieve their goals.

According to Fed Chairman Jerome Powell, in the near future, the central bank has "more work to do" related to the normalization of inflation. To do this, the Fed will need to continue to raise rates to curb inflation. Earlier, he said "policymakers did not see this as a time to pause." "I still think there is a path to getting inflation down to 2%," the Fed's target level, "without a significant economic decline or significant increase in unemployment," he said. At the same time, Powell stressed that the U.S. economy will continue to grow despite deflationary measures, and inflation will return to 2% without a significant spike in unemployment and a massive economic slowdown.

Commenting on the outlook for monetary policy after another rate hike, the FOMC chairman said that excessive tightening of monetary policy is caused by the current need, but is not a priority. "In light of the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation, the Committee decided to raise interest rates by 25 basis points, continuing the step down from last year's rapid pace of increases," Powell added. Asked about a possible easing of monetary policy, the FOMC chairman noted that "the historical record cautions strongly against prematurely loosening policy."

Earlier Powell said that it was premature to talk about defeating inflation, although it has now eased noticeably. Nevertheless, the inflation rate in the U.S. remains high, so victory is still far away. This requires a decrease in all inflationary components, the Fed chair stressed.

Regarding rate hikes, the Fed's position remains the same: at least two interest rate hikes are needed on the appropriate restrictive level. However, the central bank is now far from such a level, but it should strive for it.

Against this background, market participants expect that the growth of rates will slow down in March and remain at the level of 4.75%-5%. According to preliminary forecasts, in September 2023, the central bank will lower the rate amid slowing inflation and the onset of recession in the U.S. economy. However, the situation could change, as in December 2022, the Bank claimed that it did not intend to cut rates until 2024.

The market perceived Powell's latest comments as dovish, despite the warning about the difficulties on the way to achieving the inflation target. In addition, analysts recorded a significant gap between current market prices and the Fed's plans. Against this background, "strong economic shocks" are possible in the near term, specialists at Mizuho Bank noted.

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
Can't speak right now?
Ask your question in the chat.