The European Central Bank May Postpone Rate Hikes, As Fed Considers Speeding Up Rate Hikes

In response to a new wave of coronavirus infections sweeping across Europe, the President of the European Central Bank stated that she has no plans to raise interest rates. Many now expect the timing of the next rate hike to be delayed. On the other side of the Atlantic in the United States, Fed officials have said they may have to consider speeding up the pace of downsizing their asset purchases as inflation heats up. The U.S. dollar hit a 16-month high above the crucial 96.00 mark and traded as high as 96.25. The EURUSD fell below the 1.13 mark to hit a 17-month low of 1.1250.

The following week, investors paid close attention to the contents of the minutes of the Fed’s meeting to discuss interest rates. In November, the Federal Reserve decided to start reducing the size of its debt purchases as scheduled. The Fed cut its asset purchases by a total of 15 billion US dollars a month, 10 billion dollars of which was bond purchases and 5 billion dollars of which was securities purchases. Since the Federal Reserve announced its plan, the U.S. dollar has fallen slightly from its recent highs.

The financial markets are concerned about whether the current US economic activity and job market will continue to grow even as inflation rises. Investors are also worried that rising inflation will force the Fed to accelerate the pace of interest rate hikes. Previously, many officials from the Federal Reserve had expressed their willingness to raise interest rates actively. But US President Joe Biden has stated that he will announce the next Fed chairman before the Thanksgiving holiday this week, which may cause market turmoil and volatility. Luckily, the President reappointed the current Fed chairman, Jerome Powell, to another four-year term citing his steady and decisive leadership. In terms of data, the US manufacturing and service industry PMIs will be a crucial focus for investors this week. Technically, the US dollar is supported at the 96 levels, and the extension of the uptrend is expected to test the 97 mark. On the contrary, if the dollar index breaks the support level before 95.7, investors should pay attention to the 95.20 level.

On Wednesday, the Federal Reserve Bank of New Zealand decided to discuss interest rates, and the market expects them to raise interest rates by 0.25%. The Reserve Bank of New Zealand raised interest rates as expected by the market, citing the solid economic growth and rising inflation. The central bank warned home buyers that it would keep hiking rates next year as the real estate markets heat up. Most analysts expect the RBNZ to hike rates up to 2.5% next year to cool the hot property market. As a result, the New Zealand dollar is expected to keep rising against the US dollar and is likely to explore the 0.7080 resistance range. On the contrary, if the central bank adopts a dovish tone in the future and does not continue raising rates, the New Zealand dollar may fall to the 0.68 level.

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