The Euro likely to enter another bullish phase

EUR/USD to Remain Bullish, As ECB Stays More Hawkish Than FED

Posted Thursday, February 2, 2023 by
Skerdian Meta • 1 min read

Yesterday the Federal Reserve raised interest rates by 25 basis points (bps) which followed the slowing trend of the previous meeting. Although, chairman Powell sounded even more dovish than expected, which sent the USD lower and EUR/USD breached 1.10 for the first time since April last year.

EUR/USD H4 Chart – Finally Reaching 1.10

Buyers are clearly in total control at the moment

Today we have the European Central Bank meeting, which is expected to produce a 50 bps rate hike. This should keep EUR/USD bullish for the coming weeks. Bank of America Global Research discusses its expectations for the ECB policy trajectory versus the FED and they see the ECB out-hawkish the ECB as well.

While most central banks seem to be winding down their tightening cycles, the ECB still seems to be on automatic pilot. Ruben Segura and team expect 50 bp hikes in both February and March and two more 25 bp hikes by June. That brings the depo rate to 3.5%, with a risk of more. At first, blush that does not seem very hawkish, but keep in mind two things. First, the neutral policy rate in the Euro Area is likely quite low-the ECB pegs it at 1 to 2%, but Ruben thinks it is at the low end of that range,” BofA notes.

“Moreover, unlike the UK and US the Euro Area does not have an overheating labor market. The inflation problem is almost entirely due to supply shocks. This suggests that they should be less aggressive, not more aggressive, than the Fed,” BofA adds.

EUR/USD Live Chart

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