EUR/USD drops to six-month low near 1.0630 on Fed
- EUR/USD extends losses due to Fed’s projection on rate hike in 2023
- Fed maintained its existing benchmark policy rates at 5.5%.
- ECB’s indication of ending the policy tightening cycle exerts pressure on the EURO.
EUR/USD continues the losing streak for the third successive day, trading lower around 1.0640 during the Asian session on Thursday. As anticipated, the US Federal Reserve (Fed) opted to keep the existing benchmark policy rates unchanged at 5.5% during the meeting held on Wednesday.
Fed projected an additional rate hike in 2023, which reinforces the downward pressure on the EUR/USD pair. Moreover, in its monetary policy statement, the Federal Open Market Committee (FOMC) has revealed its expectation for slightly elevated inflation compared to its previous forecasts.
While the monetary policy statement largely mirrored the previous decision, the sudden strengthening of the US Dollar (USD) was primarily attributed to the Federal Reserve officials’ unexpected upward revision of their projected interest rates for 2024, increasing them from 4.6% to 5.1%.
This adjustment played a crucial role in the rapid appreciation of the Greenback against the Euro. US Dollar Index (DXY) extends its gains and trades a six-month high of around 105.50 at the time of writing.
Elevated US Treasury yields helping the buck to rise. The yield on 10-year US note rose to 4.43% by the press time, the highest since 2007.
In a press conference conducted right after the rate call, Fed Chair Jerome Powell reaffirmed the Fed’s commitment to reaching its long-term inflation target of 2%.
Powell mentioned that the central bank is likely approaching the peak of its interest rate hike cycle but emphasized that future policy decisions would be data-driven.
On the other side, the Euro is under pressure since the European Central Bank (ECB) has communicated a clear signal that its 14-month-long policy tightening cycle may have reached its zenith, as it has elevated its main interest rate to an unprecedented level of 4%.
Furthermore, the downward revisions of CPI and GDP growth projections for the upcoming years, specifically 2024 and 2025, have reinforced the notion that additional rate hikes may not be on the immediate horizon.
The traders of the EUR/USD pair will likely watch Thursday when more US data is due with the weekly Initial Jobless Claims, Philadelphia Fed Manufacturing Survey, and Existing Home Sales Change. On the Eurozone docket, preliminary Consumer Confidence and ECB’s President Lagarde’s speech will be eyed.