The likely slowdown in Fed tightening benefits EUR/USD
EUR/USD continues to regain strength after a difficult start to the week. The exchange rate is supported by some fragility in the dollar as the Fed Minutes confirmed on Wednesday evening that the FOMC would be ready to slow its monetary tightening.
Investors’ focus is now on the ECB Minutes which will be published this afternoon.
Unlike the Fed Minutes, the ECB Minutes could affirm a continuation of the pace of monetary tightening given the persistence of inflation, which continues to accelerate as it slows (gently) across the Atlantic since the beginning of summer.
The background outlook for EUR/USD, which was indisputably bearish until recently, now becomes more mixed as from now on the ECB may become more aggressive than the Fed in its monetary tightening.
Nevertheless, it is not yet certain that the dollar has peaked, because it is not impossible that the Fed will raise its rates higher and for longer than expected. The Fed could raise its rates beyond the terminal rate currently expected by operators, at 5%, if inflation and wages continue to grow at too high levels. The next economic data will therefore be decisive.
EUR/USD daily price chart – key levels