EURUSD is in focus, with the Federal Reserve and European Central Bank both updating investors on their monetary policy this week.
EURUSD gained on Wednesday after the Fed decision as it trades at the 1.108 level but has surrendered the resistance after a previous move higher.
The Federal Reserve rates again in what may be its last cycle. Members of the federal open market committee backed another 25 basis point increase to bring the federal funds rate to a range of 5.25% – 5.5%, the highest in twenty-five years.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” the FOMC said. The US stock market and dollar were broadly unmoved as investors expected this latest move after a steep drop in inflation.
“We suspect that further signs of a significant easing in the monthly core CPI numbers for July and August will ultimately persuade the Fed to hold fire… as that disinflation gathers pace,” Paul Ashworth, an economist at Capital Economics, said.
Jobs data has been another issue for the Fed with a strong employment market, but the latest numbers were lower than expectations and the smallest advance in over two years.
Investors will now turn to the ECB on Thursday, with the bank also expected to hike rates again.
Both central banks are still targeting 2% and may continue to keep interest rates elevated. The ECB’s key rate is now 4%, with its deposit rate at 3.50%, after both being stuck near zero. This has only managed to bring inflation to 5.50%, with the bank saying it was committed to the 2% number.
With the market’s pricing in the latest 25 bps moves, it is possible that both banks continue that course and allow another month of inflation data to gauge the progress.
