Forex
How the Fed meeting affected the EUR/USD exchange rate
The European currency exchange rate declined sharply after the release of inflation data in the U.S. In June, the consumer price index in the U.S. rose to its highest level since 1981
EUR/USD rate on the international forex market fell by 0.37%, to $0.9999, according to the trading data.
The fall in the European currency was observed against the background of the release of inflation data in the U.S. In June, consumer prices in the U.S. rose by 9.1% on an annualized basis, against experts’ expectations of 8.8%. This is the highest figure since 1981. The inflation data increased the possibility of further active monetary policy tightening by the US Federal Reserve in order to restrain inflation.
The decline in the euro reflects a change in the rate differential between the Fed and the ECB. Over the past three months, the Fed has increased rates by a total of 150 basis points, while the ECB has kept rates unchanged. The ECB will probably not be able to raise rates at the same pace as the Fed, due to the vulnerability of several countries with excessive debt burdens (Portugal, Italy, Greece, and Spain) to interest rate increases.
In many respects the dynamics of the euro are also explained by the worsening of the euro area trade balance – in particular, in May the trade balance in Germany went into deficit for the first time since 1991. This is due to a decrease in exports to Russia and a number of other countries, while imports rose significantly due to rising energy prices.
The euro was also weakened by the publication of the July index of economic sentiment in Germany. The index fell over the month from -28 points straight to -53.8 points, marking a new low since the end of 2011. The depreciation of the euro against the dollar is also supported by the growing attractiveness of the dollar amid growing fears of a recession, which caused the flight from the risks on the world market.
Analyst at Nomura bank Jordan Rochester expects further decrease in euro against dollar to $0.95. Citigroup Bank believes that the European currency may fall even below that level if Russia cuts gas exports to Europe.
The prospects for further dynamics of the EUR/USD pair in the near future will largely depend on the supply of energy resources to Europe, in particular the resumption of Nord Stream, which is now stopped for routine maintenance.
If the pipeline returns to work at 60-40% of its capacity, the euro may fall to $0.98-0.97, the expert predicts. If the pipeline fails to resume operation after July 21, the exchange rate of the European currency may drop to $0.95, which implies reaching a new 20-year low in this currency pair.
U.S. stock index futures are rising Thursday, trading data showed. Markets are assessing the outcome of the U.S. Federal Reserve (Fed) meeting.
The Dow Jones Industrial Average (DJIA) futures rose 0.22% to 32,329 points, the NASDAQ high-tech index rose 0.96% to 12,828.5 points and the S&P 500 broad market index rose 0.48% to 3,989.75 points.
The Fed on Wednesday expectedly raised its benchmark rate by 25 basis points to 4.75-5% per year. The regulator noted that it does not expect the rate reduction this year, but allows it next year. U.S. exchanges were down 1.6% in Wednesday trading.
According to the CME Group, 55.8% of analysts now expect the Fed’s discount rate to remain unchanged in May, while 44.2% expect it to rise another 25 basis points. Thus, markets concede that the Fed may interrupt the cycle of hikes that began last March.
At the same time, shares of cryptocurrency exchange Coinbase were down 10.6% in pre-bid trading. The exchange this week received notice from U.S. authorities of an impending charge of violating laws.
Later in the trading, statistics on initial jobless claims in the U.S. for the week through March 18 will be released. Analysts forecast that the figure would increase by 5 thousand to 197 thousand applications.
Earlier we reported that the US budget deficit was $262bn in February.
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According to a report from the U.S. Treasury Department, the U.S. budget deficit in February was $262,434 billion compared to a $38.8 billion deficit in January. The Dow 30 also had problems.
Analysts at DailyFX suggested that the nation’s budget deficit for February was expected to be $256 billion. A year earlier, in February, the U.S. posted a budget deficit of $216,590 billion.
According to the GAO report, U.S. government spending rose 3.5 percent year over year last month to $524.548 billion, while revenue, in contrast, declined 9.5 percent to $262,114 billion.
Earlier, the U.S. edition of the Washington Post published an editorial stating that the new draft budget proposed by the Biden administration undermines U.S. national security and its ability to invest in the future, because it suggests a further growth of the U.S. national debt.
The WP editorial board noted that the new draft budget assumes a $2 trillion budget deficit, including due to the high cost of providing health insurance to the elderly of the baby boomer generation.
Earlier we reported that the EU has agreed to reduce energy consumption by 11.7% by 2030.
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