- EUR/USD hovers around parity after mixed signals from ECB officials.
- US retail sales confirm the possibility of a 75 basis point hike by the Fed.
- ECB officials stressed the need to raise rates;
- ECB official Mario Centeno said the central bank should take “as small steps as possible.”
The pair EUR/USD is positive on the day for the second day in a row, but faces solid resistance around the parity on the prospect of a large rate hike from the US Federal Reserve, which has caused yields to rise of US Treasury bonds. However, the shared currency continues to resist, although with a slight rise of 0.19%, amid an environment of risk aversion.
Throughout the day, EUR/USD started trading around 0.9980, falling towards the daily low of 0.9955 earlier in the European session. However, fresh offerings lifted the shared coin to a daily high of 1.0018 before settling at the current spot price. At the time of writing, the EUR/USD is trading at 1.0002.
US economic data released before the open on Wall Street and during early trading on Thursday further cemented the Federal Reserve’s case for hawkishness, as evidenced by money market futures odds. , which stand at 80% to increase interest rates by 75 basis points and 20% to reach 100.
The US Commerce Department reported that August retail sales rose 0.3% mom, above expectations for a 0.1% contraction, while the year-on-year base reading was 9.37%, lower than data from the previous month. At the same time, the Labor Department showed jobless claims for the past week ending Sept. 10 fell to 213,000, disappointing economists’ estimates of 227,000, showing the resilience of the labor market.
EUR/USD barely reacted to the data, although it pushed the major currency below parity. Meanwhile, the dollar index, a gauge of the dollar’s value against its peers, is recovering from earlier losses, rising 0.10% to 109.751.
Lately, the manufacturing data released by the Fed’s regional banks started with the New York Fed Empire State Index and the Philadelphia Fed Index. The New York Fed index showed signs of improvement, although it remains in contraction territory, while the Philadelphia Fed index fell to the contraction side after rallying in the August report.
ECB officials continue to express the need to raise rates due to high inflationary pressures in the euro zone. Philip Lane, Chief Economist at the ECB, said: “We expect that this transition will force us to continue raising interest rates in future meetings. The appropriate size of an individual increase will be larger the larger the difference from the terminal rate and the larger the the more risks deviate from the inflation target.”
Later, ECB Vice President Luis de Guindos commented that price pressures remained high, adding that the depreciation of the euro added to “these inflationary pressures.” Meanwhile, ECB official Mario Centeno said that the central bank should take “the smallest possible steps” in raising rates so as not to destabilize the economy, a signal perceived as dovish by market agents. He stressed that monetary policy “must remain predictable.”
EUR/USD traders should note that a portion of the German bund yield curve briefly inverted on Thursday, signaling investor concern that a hawkish ECB could cause an economic slowdown.
What must be considered
The Eurozone calendar will include inflation readings in the bloc and in Italy. In the United States, the University of Michigan Consumer Sentiment and inflation expectations will be published.
technical levels
Source: Fx Street
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