EUR/USD: Heat From The Fed Set To Melt Down A Growingly Vulnerable Euro

When will things return to normal? The future is murky for Europeans fearing about their summer holidays – and for financial markets as the world’s most powerful central bank is set to announce its critical decision.

The Federal Reserve is set to publish new forecasts for inflation, employment, growth – and interest rates, as markets growingly price in a rate hike as early as late 2022. The Fed is set to push back against that, but not entirely. The most recent bank projections show that only a handful of members see higher borrowing costs in 20223, and that number is set to rise. But by how many? That remains an open question.

Jerome Powell, Chair of the Federal Reserve, seemed content with a gradual increase in Treasury yields amid a vaccine and stimulus-led recovery already in the making. He was only worried – like stock markets – by the pace of the move. Ten-year US yields are now hovering around 1.63% while equities and the dollar are stable.

Powell and the Fed have a tight balancing act – acknowledging the recovery and a potential for higher inflation, without stoking fears of a rapid rate increase. The focus will likely remain on the struggles of the labor market, as some 9.5 million Americans remain out of work.

Walking the fine line between worrying about jobs, cheering the expansion, foreseeing a gradual rise in inflation, and putting down fears of an early rate hike is prone to mistakes. That means volatility. As recent figures have been encouraging and the White House is already mulling more spending, it would take only a minor tilt to optimism to push the dollar higher.

Even if Powell presents a perfect balance – the euro is in a weak spot. The debacle around AstraZeneca’s COVID-19 vaccines continues as the old continent is struggling to get jabs into its citizens’ arms and even if the crisis is resolved shortly, many European would still refuse this specific inoculation – or perhaps others.

1 2
View single page >> |

Disclaimer: Foreign exchange (Forex) trading carries a high level of risk and may not be suitable for all investors. The risk grows as the leverage is higher. Investment objectives, risk ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.