Published on 17.06.2022 11:26

The Euro was able to benefit in yesterday’s trading session against the US dollar after a disappointing round of data from the world’s largest economy shows that higher interest rates may already be having an impact while cutting into economic growth.

The latest US Home Sales for May hit the market at their lowest level in a year, and Building Permits contracted by -7%. An even worse performer was the Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey index which came in at -3.3 in June and was well below analysts’ expectations for a figure of 5.5. There was also disappointing employment data as the Initial Jobless Claims 4-week average climbed to 218.5K versus 215K expected during the period ending on June 10

Although the news was disappointing, it is unlikely to deter the US Federal Reserve from further rate hikes and some analysts predict the Fed will push interest rates over the 4 percent mark while the European Central bank is expected to top out at 1.75 percent. This gap in rate differentials is expected to keep the US dollar well supported and help the case for the EUR/USD pair to reach parity.

“We expect the Fed to hike by 75 bps in July, followed by 50 bps in September and November, and then by 25 bps in December, January, and March to end at 4.25% for the upper bound.” said economists at Nordea

“The ECB is set to follow the signaled 25 bps July rate hike with 50 bps moves in September and October, 25 bps in December and further three times in 25 bps steps in H1 2023.” They added.

Looking ahead today, the main focus for the EUR/USD currency pair will be the release of the Harmonized Index of Consumer Prices to be released by Eurostat on and the annual HICP figure is expected to come in at 8.1% with no changes from last month. The core HICP that doesn’t include food, energy, alcohol, and tobacco is also expected to come in the same as last month at 3.8%.

During the American session market participants will await a monetary policy speech from US Federal reserve president Jerome Powell who is expected to retain his hawkish stance which he delivered after the unexpected 75 basis point rate hike on Wednesday.


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