Published on 03.08.2022 17:31

The Euro initially rose in today’s trading session against the US dollar but then pulled back later in the day as investor apprehension over hostile US-China relations subsided. The has another reason to remain on the backfoot with the greenback firm to US treasuries declining as a result of hawkish Federal Reserve comments.

Markets have been calmer since US House Speaker Nancy Pelosi returned from a trip to Taiwan that sparked a furious response from China. US stocks on Wall Street have advanced with government bond yields after a services gauge unexpectedly advanced and new orders for factory goods beat expectations. This has implied that the projected hike in interest rates this year may not necessarily coincide with an economy in recession, a relief for risk assets in general.

The dollar has also been boosted by Fed officials saying the central bank has some distance to go to contain inflation. This resulted in the two-year treasury yield surging through 3% as traders reduced their bets on policy easing in 2023.

Nevertheless, the USD dollar index, which tracks the greenback against a basket of major currencies has fallen from a two-decade high in mid-July as investors reined in expectations of Fed rate hikes.

The size of the next rate hike from the Fed is still under question and San Francisco Fed President Mary Daly said today that 50 basis points would be a reasonable thing to do in September.

''We have a lot in the pipeline in tightening but yet to see that in data showing a slowing of the economy, but if we see inflation roaring ahead undauntedly then perhaps 75 be more appropriate.'' Mrs. Daly said.

The big news to keep an eye on this week regarding the EUR/USD currency pair is the release of the Nonfarm Payrolls this Friday followed by Consumer Price Index on August 10 will help set stage for there Fed regarding any future rate hikes.

The consensus for Nonfarm Payrolls is 250k. That is down from 372k in June. The Unemployment Rate is expected to fall in at 3.6%.


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