Euro stays strong despite bullish Fed
Published on 06.01.2022 13:07

The Euro held up quite well in yesterday’s trading session considering the bullish tone from the US Federal Reserve with regards to interest rate hikes which could now come at any time.

The latest FOMC minutes pointed to the US central bank which may need to hike interest rates earlier than previously expected and begin selling off its Treasury holdings while soon after beginning to raise the federal funds rate which was brought upon by skyrocketing inflation which is more the twice the Fed’s target rate.

A possible interest rate hike was likely to be on the cards but the speed at which the fed is prepared to move with regards to rate rises caught the market somewhat off guard.

“Generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” a statement from the minutes say.

The Euro initially fell on the news but was quickly able to recoup the losses against the US dollar which probably means rate hikes in the US are already pretty much priced into the market. The possibility however, of the Fed selling off its Treasury holdings and unwinding its balance sheet earlier than previously expected will keep the US dollar well supported going forward as higher greenback rates will give it an advantage over lower-yielding currencies, including the Euro.

As we enter today’s trading session, the Euro has risen slightly on the back of the release of the latest factory orders from Germany which hit the market on a positive note, coming in at 3.7% against analysts expectations for a figure of 2.1% and well up from last month’s number of -5.8%.

It’s still a relatively busy day ahead on the economic calendar and the main drivers of the EUR/USD currency pair will be the release of the CPI figures from Germany later in the European session followed by the weekly jobless claims’ numbers and ISM Non-Manufacturing PMI figures from the US during the European session.


Andrew Masters

Analyst

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