Published on 05.05.2022 12:41

The Euro was given a temporary reprieve in yesterday’s trading session against the greenback after US Federal Reserve Chairman Jerome Powell dismissed the prospect of a 75 basis point rate hike, even as he said the U.S. central bank will move forward with further rate rises to counter soaring inflation.

Mr Powell said in a press conference following the Fed’s policy statement that the U.S. central bank is not currently considering a 75-basis point increase, but further additional 50 basis point rate hikes will be on the table for the next couple of meetings.

In the end, the Fed raised its benchmark overnight interest rate by 50 basis points, which was the biggest increase in 22 years, and was already priced into the market by investors.

Some market participants had been placing bets that the Fed would follow through in their next meeting with a 75-basis point rate hike but when Powell shut those expectations down, the Euro immediately rallied.

“The market was pricing in essentially a 50/50 chance that you see a 75 basis point hike by July, between June and July, and so I think the most important takeaway here that I think the market was really fixated on, was whether or not a 75 basis point hike is on the table, and Powell)basically pushed back on that,” said Mazen Issa, senior fx strategist at TD Securities in New York.

As we enter today’s trading session, the Euro has pulled back from yesterday’s rally after a disappointing round of data released earlier today cast doubt on the current recovery of the European economy.

The latest German Factory Orders fell sharply last month, suggesting that the manufacturing sector of Europe’s economic powerhouse is struggling to revive itself.

The figure fell by - 4.7% on the month against analysts’ expectations for a number of -1.1% and it was also well down on the previous months reading of -0.8% On an annualized basis, Germany’s Industrial Orders fell by 3.1%

As we look further ahead today, the main driver of the EUR/USD currency pair will be the release of the Initial Jobs claim figure from the US which will be closely monitored by the market as it is usually a good indicator of what to expect from the US Nonfarm Payrolls figure which will hit the market tomorrow. The US NFP is expected to come in at 394k against the previous figure of 431k.


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