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EUR/USD falls below parity in advance of ECB and Fed Chairman Powell's speeches
EUR/rebound USD's from a near two-decade low has stalled as of late. In addition to stronger rates and hawkish Fed wagers, a cautious outlook ahead of important events weighs on pricing. Previously, optimistic US data and the Beige Book combined with pre-ECB consolidation to favor purchasers. ECB's capacity to appease hawks, as well as Powell's defense of aggressive rate hikes, will be crucial to monitor for direction clarity.
EUR/USD falls to 0.9990, having rebounded from a 19-year low the day before, as the US dollar regains upward momentum amid a cautious tone ahead of the big events. Also exerting downward pressure on the major currency pair could be the bloc's economic difficulties and the European Central Bank's (ECB) hesitation regarding the extent of a rate hike.
The current retreat comeback in rates and hawkish Fed wagers may have dragged on the EUR/USD exchange rate, as well as Ursula von der Leyen's pessimistic remarks.
After making a U-turn from their highest levels since mid-June, 10-year US Treasury rates recover approximately 3.27 percentage points of the previous day's losses. It should be noted that the CME's FedWatch Tool indicates a 77% possibility of a September rate hike of 75 basis points (bps), up from 73% the previous day.
On the other hand, EU President von Der Leyen seems bleak, since she stated the day prior that 50 percent of the EU's aluminum and zinc capacity has already been shut down owing to the power problem.
As Eurozone data strengthened and the Fed's Beige Book contained upbeat sentiments, the pair posted its largest daily gain in 2.5 months on Wednesday. Fed leaders' contradictory remarks also favored the purchasers.
In spite of this, the Eurozone's Gross Domestic Product (GDP) rose by 0.8% QoQ in the three months leading up to June 2022 (Q2 2022) compared to the initial prediction of 0.6%. However, year-over-year data improved to 4.1% in Q2 versus the 3.9% predicted in the early estimates. In contrast, the US Goods and Services Trade Balance improved to $-70.7 billion in July from $-80.9 billion in June, compared to $-70.3 billion in predictions. In addition, the Good Trade Balance fell to $91.1B from $-89.1B in July. In addition, the Fed's Beige Book indicated a recovery in the supply chain and a deceleration in price inflation, which sparked a risk-on sentiment and supported pair buyers.
As reported by Reuters, Fed Vice Chair Lael Brainard maintained on Wednesday that the Fed's policy rate will need to increase further and that they would need to maintain a tight monetary policy for some time. In contrast, Loretta Mester, president of the Federal Reserve Bank of Cleveland, stated, "I will choose my preferred rate hike amount at the September meeting itself."
Wall Street ended the day with a gain, rates declined, and S&P 500 Futures are showing slight losses as of press time.
The art of Fed Chair Powell's justification of rapid rate hikes will be put to the test during today's speech, especially in light of the ECB's hawkish expectations. Consequently, the EUR/USD pair's ongoing decline depends on how effectively Powell can convince investors of future rate hikes. Prior to that, it will be crucial to monitor the ECB's capacity to appease policy hawks as indecision between a 50 bps and 75 bps move persists.
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