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EUR/USD nosedives to multi-year lows around 0.9812, though meanders around 0.9830s ahead of Powell’s presser

  • The Federal Reserve raised rates by 75 bps and expects rates to finish at around 4.4% in 2022.
  • In the Summary of Economic Projections, the median of Fed officials estimates growth at 0.2% by the year’s end.
  • EUR/USD Reaction: Tumbled to fresh multi-year lows at around 0.9812.

The EUR/USD collapsed to fresh multi-year lows as the US Federal Reserve hiked rates by 75 bps, and anticipated ongoing increases to the Federal fund’s rates (FFR) will be appropriate. Also, the Federal Reserve Open Market Committee (FOMC), decided to continue reducing the Balance Sheet, as planned in May. At the time of writing, the EUR/USD oscillates around the 0.9810-50 area, due to increased volatility, after the Fed’s decision.

Summary of the monetary policy statement

In its monetary policy statement, Fed officials acknowledged that indicators point to modest growth in spending and production. Additionally mentioned that the labor market remains “robust” and that inflation is still reflecting imbalances between supply and demand.

Policymakers reiterated the Fed’s commitment to return inflation to its 2% objective and would assess incoming data, including readings on public health, labor market conditions, inflation pressures, and inflation expectations.

Regarding the Summary of Economic Projections, FOMC members estimate the Federal funds rate (FFR) at 4.4% by the end of 2022, according to the median, while growth in the US for the same period is estimated to finish at 0.2%.

Concerning inflation data, Fed officials estimate that plain vanilla inflation, known as the PCE, will end at 4.5% in 2022 while excluding volatile items, and the Fed’s favorite gauge of inflation, the core PCE, to remain around 4.5% by the year’s end.

Markets reaction

Once the headline crossed newswires, the EUR/USD dropped below the 0.9870 mark and reached a daily low of 0.9812. However, it bounced off those lows, and so far, the EUR/USD has recovered some ground, at around 0.9839, ahead of the Federal Reserve Chair Jerome Powell’s press conference at around 18:30 GMT

EUR/USD Key Technical Levels

 

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