- EUR/USD advances strongly ahead of US NFPs and next week’s ECB monetary policy decision.
- The Cleveland Fed’s Mester expects Fed funds rates to rise above 4% and would like to keep them higher for longer.
- ECB hawks expect at least a 50 basis point hike at the September 8 meeting.
- Money market futures estimate that the ECB will hike 125 basis points in October.
The EUR/USD is posting decent gains in the North American session amid a risk-off environment, courtesy of further hawkish Fed comments, with Cleveland Fed’s Mester taking the stand. At the same time, month-end flows weighed on the USD.
EUR/USD opened near parity before falling towards daily lows at 0.9971 before rising sharply, reaching a daily high at 1.0076 on month-end flows. At the time of this writing, the EUR/USD is trading at 1.0059, above its opening price.
During the New York session, the president of the Cleveland Fed, Loretta Mester, stressed that US rates have to be above 4% in 2023 and reiterated that the Fed has to “keep them there”. Mester added that she does not anticipate rate cuts in 2023, while acknowledging that while recession fears have risen, they are not part of her baseline.
Meanwhile, on the US economic docket, the ADP figures for August were released, the first, after a pause due to changes made to the report. Private hiring increased by 132,000 less than in July, 270,000. Later, the Chicago PMI for August rose more than estimated, topping 52.2 vs. 52 expected by analysts.
Meanwhile, the energy crisis in the euro zone continues to worsen. The Nordstream 1 pipeline went into maintenance for three days, Gazprom reported, keeping investors uneasy amid a period of high energy prices. Meanwhile, EU inflation rose 9.1% year-on-year, above estimates, while underlying readings, which strip out volatile items, also rose 4.3%.
In the latest reports on the Nordstream 1, Gazprom commented that Siemens was unable to perform regular maintenance of pipeline equipment via Interfax. The gas pipeline works at 20% of its capacity.
On the other hand, the ECB hawks are everywhere, crossing wires. The first was Rehn, who said that although the economic outlook has darkened, monetary policy must be normalized. He anticipates further rate hikes. Later, Holtzmann of the ECB commented that 50 basis points is the minimum for September, while he added that it is necessary to throw 75 basis points in the discussions.
What must be considered
The euro zone economic calendar will reveal German retail sales, among a series of S&P global manufacturing PMI readings. In the United States, jobless claims, the S&P Global PMI and, above all, the ISM Manufacturing PMI will be published.
EUR/USD Key Technical Levels
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
