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Market News The EUR/USD opens the week around 0.9750, with the conflict between the ECB and the Fed in focus

The EUR/USD opens the week around 0.9750, with the conflict between the ECB and the Fed in focus

In the midst of a lackluster session, the EUR/USD gains bids to reduce its two-week loss. Discussions on the ECB's quantitative target distract hawkish bets but keep policymakers optimistic. The "almost inevitable" market case for a 75 basis point (bps) Fed rate hike permits US currency bulls to take a breather. Absence of significant data/events and cautious optimism keep short-term purchasers optimistic.

Alina Haynes
2022-10-17
292

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During Monday's Asian session, the EUR/USD maintains its strength near 0.9750 while holding its two-week decline. In the absence of big data/events, the major currency pair remains within the short-term crucial technical area.

 

Recent statements by policymakers of the European Central Bank (ECB) and the US Federal Reserve (Fed) indicate hawkish stances at both of the world's leading central banks, but the ECB's Quantitative Tightening (QT) is viewed as a step ahead of the Fed's.

 

In recent meetings, ECB Chief Economist Philip Lane has underlined the need for rate increases. In contrast, ECB Policymaker and Dutch Central Bank Governor Klaas Knot stated, "ECB should consider beginning to reduce its enormous stock of assets whenever interest rates reach a level that neither encourages nor retards economic growth." The policymaker added that he does not anticipate a sudden end to policy rate hikes, but that rate increments will likely become smaller as we continue to raise rates and as we get closer to restoring a genuine likelihood of inflation returning to target.

 

In contrast, James Bullard, president of the Federal Reserve Bank of St. Louis, stated, "The United States has a major inflation problem," adding, "Front-loading Fed policy is the correct option."

 

The recent risk-on market sentiment was spurred by the dismissal of Britain's Chancellor Kwasi Kwarteng and suggestions of more rate hikes by Bank of England (BOE) Governor Andrew Bailey. The steps appear positive and will likely prevent the imminent collapse of the British market, at least for the time being.

 

S&P 500 Future ignores Wall Street's negative close and increases by 0.5 percentage points, as US 10-year Treasury rates struggle to continue their recent uptrend near the 4.0% mark. Notably, CME's Fedwatch Tool indicates a roughly 95% possibility of a 0.75 percentage point Fed rate hike in November.

 

Moving forward, a light economic calendar and the absence of key events may allow the EUR/USD pair to consolidate prior losses. The headlines surrounding the ECB's QT and the market's rejection of the Fed's 1% rate hike are also expected to boost the quotation.

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