The Euro racked up its best weekly gain against the US dollar in over 4 months last week due to a number of speeches by US Federal Reserve board members who seemed quite concerned regarding interest rate hies moving forward and the damage it is doing to the US economy as shown by the current slowdown in the housing market. It will now be an interesting wait to the next rate decision in November and it will be eve n more interesting to wait and see if the Fed deliver another 50-basis point rate hike
With the rate decision more than a few weeks away, The near term focus for EUR/USD pair is the latest decision from the European Central Bank, which is set to hit the market on Thursday With inflation continuing to climb at a rapid pace in the Euro area the ECB is likely to continue with their aggressive rate hiking cycle and Policymakers are seen raising the Main Refinancing Rate and Deposit Facility Rate by 75-basis points to 2% and 1.5%, respectively.
That is largely priced into the market so if analysts are correct, a 75-point rate rise is unlikely to boost the Euro much but if the ECB surprise the market and deliver a 50 point hike the European currency may be heavily sold off
A lot of attention will now be paid to the ECB’s December rate decision and if ECB President Christine Lagarde continues to press on with the message of fighting inflation, a 75-basis point hike in December may be on the cards and this will help to alleviate the yield differentials between the Euro and the greenback which should lend some support.
The S&P Global/BME Composite PMI and the S&P Global/BME Manufacturing PMI for October from Germany and the Eurozone have just hit the market as the European trading session gets underway and have all come in slightly below expectations which has caused the Euro to drop by about 10 points.
Looking further ahead today, the main drivers of the Euro/USD currency pair will be the release of the same news form the US which is expected to come in slightly weaker than last months figures and is unlikely to have a marked impact on the currency pair.