EUR/USD Analysis Amid Renewed Fed and ECB Speculations

Arslan Butt•Friday, October 13, 2023•2 min read

During Friday’s Asian session, the EUR/USD currency pair garners traction around the week’s bottom, approximately in the 1.0525-1.0520 zone. Presently, spot rates are oscillating in the 1.0535-1.0540 domain, marking a modest ascent of roughly 0.10% on the day, seemingly decelerating the precipitous overnight pullback from its almost three-week pinnacle.

Indeed, Thursday saw the EUR/USD pair log its most significant daily downturn since early October.

This occurred after the US consumer inflation metrics bolstered anticipations for an additional 2023 rate increment by the Federal Reserve, thereby rejuvenating the appetite for the US Dollar.

Both the principal and Core CPI statistics exceeded the Fed’s benchmark of 2%, fortifying the case for enhanced monetary constrictions.

Consequently, there was a pronounced surge in US Treasury bond yields, sparking an extensive USD short-squaring momentum.

However, ensuing dovish indications from multiple Fed representatives imply that the central bank’s rate-enhancement phase may be drawing to a close.

This factor tempers the escalation of US bond yields, obstructing the USD from building on its prior day’s robust rebound from a high that stood unmatched for over two weeks.

Simultaneously, a subtle surge in US equity futures diminishes the allure of the safety-centric USD, providing a slight boost to the EUR/USD configuration. Nevertheless, the prospects of a substantial upward movement remain uncertain.

Thursday’s sentiment from the European Central Bank (ECB) officials conveyed a guarded optimism, anticipating a return of inflation to the 2% threshold, even devoid of additional rate augmentations.

This sentiment aligns with the ECB’s September announcement where the institution hinted that the recent rate elevation, marking the 10th in a 14-month crusade against inflation, might be its conclusive move.

Coupled with apprehensions of economic deceleration and potential recessionary threats, this intimates that the ECB may desist from further rate hikes, likely placing a ceiling on the EUR/USD trajectory.

Attention now pivots to remarks from ECB Chief, Christine Lagarde, during a discourse at the Annual Meeting of the World Bank Group and the International Monetary Fund in Morocco. Her insights could sway the shared currency, offering momentum to the EUR/USD pair.

Additionally, the market will glean insights from a forthcoming address by Philadelphia Fed President, Patrick Harker, and the preliminary readings from the Michigan Consumer Sentiment Index, both of which will play pivotal roles in shaping USD demand dynamics.

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ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.