Effect Fed on theeuro dollar this morning: the pair is moving higher after the less aggressive than expected tone of the words of Powell in yesterday’s press conference.
EUR/USD continues to gain ground as widespread positive sentiment in the market provides support for risk-sensitive currencies such as the community currency. The Bloomberg dollar index fell for a second day, reflecting the decline in US yields. US Treasuries were little changed in trading in Asia, with the benchmark 10-year yield at 4.62%.
In summary, the resumption of downward pressure on the US dollar encouraged the euro-dollar pair to reduce losses and regain the area well above the 1.0700 obstacle. At the time of writing EUR/USD trades at 1.0725with the peak of 1.0731 reached yesterday during the Fed press conference.
Fed dampens dollar, pushes EUR/USD. The yen is also in focus
The dollar’s bearish movement accelerated in the wake of Fed decision to keep interest rates unchanged at 5.25%-5.50%, as widely expected, at the end of the two-day meeting on Wednesday.
The Committee remained consistent with the federal funds target range (FFTR) of 5.25%-5.50% and aimed to reduce financing costs, but raised concerns about inflation and on the potential arrest of economic equilibrium. The central bank also announced plans to slow the pace of balance sheet reduction, countering previous warnings.
Increasing selling pressure on the greenback, Chairman Jerome Powell argued that the cutting rates will not be appropriate until the Committee is more confident that inflation is returning to the 2% target. Powell said that, over time, current policy measures will be effective in keeping inflation within target, adding that the next policy adjustment is unlikely to involve a rate increase.
In the long term, it is expected that the US dollar weakness will be short-lived due to delayed expectations of a potential interest rate cut by the Federal Reserve later this year. In this regard, the FedWatch Tool monitored by CME Group indicated that the probability of a 25 basis point interest rate cut at the September 18 meeting has fallen to almost 40%.
According to Fxstreet strategists, the relatively subdued economic fundamentals of the Eurozone, combined with the resilience of the US economy, reinforce expectations for a stronger dollar in the medium term, especially given the growing likelihood that the ECB cuts rates well before Fed.
In this context, it is expected that the EUR/USD exchange rate will decline more significant in the medium term.
Finally, investors’ attention remains high on the yen. The yen fell 1.1%, following Wednesday’s rise in New York. The renewed decline suggests that investors are skeptical about the ability of Japanese authorities to prevent the currency from depreciating, given the country’s wide interest rate differential with the United States. Japan’s top currency official, Masato Kanda, said he had nothing to say when asked whether officials had intervened.
