Euro - Dollar gains again as Fed becomes more hawkish
The U.S. Federal Reserve (FED) announced that it would keep interest rates unchanged, but strengthened its hawkish stance and expected to raise interest rates once more before the end of the year. The median forecast among Fed policymakers still shows the target range for the benchmark overnight rate will top out this year at 5.50%-5.75%, just 25 basis points above current levels. However, its latest quarterly forecast shows that interest rates will only fall by 50 basis points in 2024, compared with a forecast in June of a 100 basis point drop. The policy statement at the meeting stated that "inflation remains high." Policymakers have significantly raised their economic growth forecasts: the economy is expected to grow by 2.1% in 2023, compared with the previous forecast of only 0.4%; inflation is expected to be 3.3% at the end of the year, and by the end of next year will drop to 2.5%. Policymakers remain optimistic about the prospects for a "soft landing." Federal Reserve Chairman Jerome Powell warned that the Fed's latest forecasts show that monetary policy will remain elevated for longer, but this is not a commitment to action. Powell also said rising bond yields did not appear to indicate a lack of confidence in Fed officials to bring inflation back to target; a soft landing was a reasonable prospect. The dollar pared losses against a basket of currencies following the announcement and forecast. Fed funds futures showed traders lowered their expectations for a rate cut from the Federal Reserve.
As for the trend of the euro against the US dollar, the chart shows that the MACD indicator is breaking above the signal line, and the exchange rate fell to 1.0633 on May 31. If it can still hold this area in the future, the euro will still tend to stabilize. In addition, the downward trend line formed by the decline in the exchange rate since July is currently at the 1.0810 level. If the exchange rate can break through this area in the future, the euro will be expected to rise again. Calculated by the golden ratio, the rebound range of 38.2% is 1.0925, and the range extended to 50% and 61.8% is 1.0990 and 1.1060 levels. As for the more critical support below, it will point to the 1.05, which was the supporting area that the euro held firm from February to March this year; if it breaks again, it will further refer to the low of 1.0288 on November 30 last year.
Resistance 1.0810 – 1.0925 – 1.0990 – 1.1060
Support 1.0633* - 1.0500** - 1.0288
Highlights of the week:
ECB Governing Council member Stoneras calls on governments to help reduce inflation
Bundesbank monthly report: Germany's economy is likely to shrink in the third quarter due to industrial decline and sluggish consumption
Eurozone HICP rose 0.5% in August from the previous month
Eurozone HICP rose 5.2% in August compared with the same period last year
Eurozone’s seasonally adjusted current account surplus in July was €20.9 billion
Eurozone's unseasonally adjusted current account surplus in July €26.9 billion
ECB Governing Council member Villeroy de Gallo said the ECB will keep interest rates at 4% for a long enough time to reduce inflation.
Makhlouf, the Governing Council of the European Central Bank and President of the Central Bank of Ireland, said that the European Central Bank is "already or almost" at the peak of its interest rate hike cycle, but that the first interest rate cut in March next year may be too early.
European Central Bank Governing Council member Decos said the current risks to inflation in the euro area are balancing
Thursday: Eurozone consumer confidence index in September (22:00)
Friday: Eurozone September PMI (16:00)
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