EUR/USD struggles to advance ahead of Powell’s intervention at the Fed

• EUR/USD bulls are being pushed back on a reversal on Wall Street.
• All eyes are on Federal Reserve Chairman Jerome Powell.

The EUR/USD it is once again lateralized while the American session enters into the last hours. EUR/USD has fallen from a high of 1.0394 to a low of 1.0325 so far on the day and stands near 1.0340 at time of writing. Growth stocks on Wall Street have extended their declines, eclipsing the rise in energy stocks after oil prices fell on concerns over OPEC+ output, weighing broadly on riskier currencies as the US dollar bounces.

The euro was initially favored early on Tuesday on hopes of a possible easing of China’s tight restrictions following an unprecedented bout of unrest in the country. Consequently, the DXY fell 0.4% to 106.19. However, two economic indicators came through the door on Tuesday, missing expectations, and could weigh on risk sentiment.

The Conference Board (CB) index fell 2 points to 100.2, a hair above the consensus of 100. In addition, house price data from the S&P DJI Case-Shiller showed across-the-board monthly declines in its composite of 20 cities. On a year-over-year basis, the composite rose 10.4%, up from 13.1% in August. Attention will now turn to the November employment report on non-farm payrolls, which is expected on Friday.

The arrival of Powell from the Fed

Meanwhile, preliminary euro zone inflation data for November is due to be released on Wednesday, with economists polled by Reuters expecting inflation to come in at 10.4% year-on-year. However, the key event on Wednesday will be comments from Fed Chairman Jerome Powell. He will look at whether there are any further signs of monetary policy tightening. The Fed is expected to raise rates by an additional 50 basis points when it meets on December 13-14. WIRP suggests it is fully priced in, with a 15% chance of a move greater than 75 basis points. The swap market continues to price a top rate of 5.0%, with small chances of a top of 5.25%.

However, St. Louise Fed CEO James Bullard said the Fed has “some way to go to get” to a tighter policy, adding that the first 250 basis points of adjustment was enough to get to neutrality. He added that the Fed needs to move further into tight territory and may have to keep rates higher through 2023 and 2024. In addition, Bullard stressed that markets are underpricing the risks of the Fed being more hawkish.

Bullard and the hawks have been right all along,” said analysts at Brown Brothers Harriman. “We think the less hawkish Fed are backing down a bit now, but will likely be forced to capitulate once more if inflation continues to hold. stiff, as we expect.”