Published on 01.12.2021 11:43

The Euro’s rally against the US dollar was stopped in its tracks yesterday after bullish words from the world’s most powerful Central banker that put markets on notice to prepare for rate hikes in the US.

In a speech to the American Senate Banking committee, US Federal reserve President Jerome Powell noted that the US Central bank is currently scheduled to complete its asset-purchase program in mid-2022 under a plan announced at the start of November; policy makers but this may now be brought forward with inflation proving more persistent than forecast.

It’s “appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner” Mr Powell said.

The remarks immediately raised speculation that rate hikes in the US will come earlier than expected and now the market is pricing in a rate rise for the first quarter of next year followed by at least to more before the end of 2022.

It seems now, the only thing that could derail the Feds plans would be if the new variant of Covid 19, namely the omicron virus continued to spread which would once again throw the world economy into chaos.

“Given the consistency of the message about tapering coming from the Fed in recent weeks, it now looks like it will take a deterioration in the public health situation over the next two weeks to prevent the FOMC from deciding to quicken the pace of tapering at the next meeting,” said Michael Feroli, chief US economist at J.P. Morgan.

As we enter today’s European trading session we have already seen the release of retail sales figures from Germany, Europe’s biggest economy which hit the market on a monthly basis at -0.3% against analysts expectations for a figure of 1%,  while the yearly figure was also very disappointing coming in at -2.9%  against predictions for a figure of  2%. The Euro pulled back slightly on the news.

Looking ahead today, the main drivers of the EUR/USD currency pair will be the release of Markit manufacturing figures from France, Germany and the Eurozone as a whole which should give a clear picture on current business conditions in the Euroblock.

In the American session we will see the release from the US of the all-important ADP employment figures which should present a clear picture on the state of the US jobs market as well as Markit manufacturing and ISM manufacturing numbers to round out the trading day.


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