EUR/USD could fall below 1.05 if the Fed offers a larger 50 basis point hike this month — MUFG

The pair EUR/USD it lost more than 100 points on Tuesday and closed below 1.0550 in response to hawkish monetary policy signals issued by Fed Chairman Jerome Powell in his semiannual address to congress. The pair could dip below 1.05, they report MUFG Bank economists.

The dollar will continue to bounce in the short term

“Powell delivered two clear hawkish policy signals about the prospects for further monetary tightening. First, he said that the latest economic data “suggests that the final level of interest rates is likely to be higher than anticipated.” previously.” Powell’s second signal of aggressive monetary policy was that he reopened the door for a quick return to further 50 basis point rate hikes.”

“Events have clearly increased the upside risks to the US dollar. While we did not expect the Fed to give such a hawkish policy signal yesterday, it supports our view of a further dollar rebound in the near term.”

“We had stood by our forecast that EUR/USD would fall back to the 1.05 level by the end of the first quarter. It could fall further if the Fed offers a larger 50 basis point hike this month.”

Source: Fx Street

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