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The ECB Forum Fails to Push the Euro to USD Higher

The EUR/USD trades at the year’s low, even after central bank leaders gather at the ECB forum to discuss policy rate hikes amid high inflation.

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Euro to USD Almost at Year’s Low

The EUR/USD hit a multi-year low at 1.0350 in May 2022. On Friday, July 1, 2022, the Euro to US Dollars reversed from 1.0366 to close at 1.0428.

A break below the 1.0350 support area may set the stage for another leg down. Investors can watch for the next support at the January 2017 lows at 1.0340. Inflation is at a record high of 8.6% in June, causing jitters among investors in the Euro region. The consumer price index hit a fresh record high in June, as food prices and energy costs cause high inflation rates.

The Euro to USD reached its peak at 1.60 in 2008.

High inflation, soaring energy prices, and supply bottlenecks are hindering economic growth in the country, driving inflation to 8.6% in June 2022.

EUR/USD Trending Lower
EUR/USD Trending Lower

ECB Forum at Sintra

The ECB President Christine Lagarde, Fed Chairman Jerome Powell, and Bank of England Governor Andrew Bailey discussed the central bank policy outlook at the ECB Forum held at Sintra.

Top central bank leaders fear that high inflation may result in an economic downturn. High inflation is led by rising crude prices and energy supply disruptions. Top leaders fear that inflation at multi-year highs will disrupt economic activities.

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The Fed chairman held a hawkish approach, hinting at multiple rate hikes in the coming months. However, Lagarde did not reveal much about the ECB strategy to curb the high inflation.

The global leaders discussed the “Threats to Financial Stability” at the ECB forum. Inflation and monetary policy making are the chief cause of worry for the US, the UK, and the Eurozone.

Leaders reviewed measures to tackle energy price volatility in Europe. Supply disruptions amid the geopolitical tensions caused by the Russian invasion of Ukraine have led to an energy price rise.

High Debt Level in Europe

The European countries face a high debt level. The ECB keeps a close track of the high inflation in the region. An emergency meeting held in June created panic among investors on fear of a debt crisis. The bond yields in France and Germany widened rapidly, and the ECB intends to calm the bond markets regarding debt repayment.

Lagarde warns that monetary policy tightening may bring financial constraints to the region. If the need arises, the ECB will hike rates at a faster pace, says Lagarde. A hike in interest rates may cause a recession, say experts.

Inflation in the Eurozone is at 8.6% amid high crude prices and an energy crisis in the country. The inflation rate is much higher than the target at 2%, and the ECB is taking steps to tame inflation.

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The ECB has kept rates below zero as economic growth is slackening in the Euro region. Bank of England raised interest rates to 1.25% and said that rates will increase forcefully in the future. Inflation is a persistent problem to be addressed to bring back economic growth. The Fed is on a massive rate hike policy to address rising inflation.

Energy disruptions in various parts of the Eurozone cause production constraints. High energy costs are problems faced by consumers as household spending climbs higher, burning a hole in their pockets.

Major Currency Pairs Outlook

EUR/JPY

The Euro to Japanese Yen is at 140.98, trading at multi-year high levels, at levels last seen in 2014. The negative momentum in the Japanese Yen will resume saying, analysts. As investors hammered the Japanese Yen, the Euro to Japanese Yen started July at the year’s high. The Bank of Japan has not hiked interest rates despite high inflation in the country. The central bank is struggling with its ultra-loose policy, though inflation is raging in the country as the people start to feel the pinch of rising cost prices.

EUR/GBP

The Euro to British Pound has been volatile for the past two trading sessions, fluctuating by 160 pips in the forex market.

Bailey warns of another rate hike as the economy shows signs of slowing. Weak economic data from the United Kingdom is driving the Euro to British Pound lower.

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US Dollar Index

The Fed is expected to bring in multiple rate hikes to address inflation problems. Investors are now turning to the US Dollar as a safe-haven asset.

After a decline, the greenback is climbing higher, trading at 104.909 on Friday, July 1, 2022. The US Dollar index took support at the 103.50 levels and bounced to close just below 105 levels last week.

Rate hikes are driving the US Dollar higher while the equity markets are heading lower.

The Fed is on a policy tightening strategy to curb inflation. But fear of a recession keeps investors away from the forex market. China brought down covid restrictions to allow international traveling.

 

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