- EUR / USD tumbled below 1.2050 on Wednesday, affected by strong US data.
- A dovish release of the FOMC Minutes did not affect price action at all.
A dovish tone in the Minutes from the most recent FOMC meeting, released at 19:00 GMT on Wednesday, did not come to the EUR / USD rescue. The pair, which has been under pressure since before the start of the US session on Tuesday, is currently recovering modestly away from session lows and trading at 1.2040. On the day, the EUR/USD it trades with losses of around 0.5% or just over 60 pips on the day and the euro is one of the worst performers of the day on the G10 FX.
Although, as Wednesday’s FOMC statement reaffirmed, the Fed intends to maintain its ultra-accommodative policy for the foreseeable future, markets know that when it comes down to it, the Fed is reliant on data. In other words, if the US economy returns to full employment and inflation manages to keep the core PCE sustainably but moderately above 2%, rates will increase. The current market consensus is for this to happen sometime in 2024 (hence, short-term bond yields are still close to zero). But this could happen sooner and recent robust data combined with expectations of a powerful post-Covid-19 economic recovery (sent even further into overdrive by increased fiscal stimulus) appear to have brought forward expectations for Fed tightening. Instead If it means that the Fed raises rates before 2024, that could alternatively mean that the Fed begins to reduce its asset purchase program earlier than expected.
This narrative is bearish for the EUR / USD given that the expectations of any adjustment by the ECB in the short term are practically far away. The EU Recovery Fund is small compared to the multiple fiscal stimulus packages already in place in the US, implying a slower recovery after Covid-19. Additionally, the bloc’s comparatively slow vaccine launch pushes the timeline for a return to “normalcy” in Europe further back than in the US. There is a practically unanimous consensus among analysts that the Fed’s policy of tightening will be before the ECB, the question is how much sooner?
Technical Levels
.
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
