EUR/USD In Choppy Momentum as Global Inflation Rages

Central banks across the globe have been responsible for the recent volatility pump into the FX market, as the EUR/USD pair whipsaws between 1.0350 and 1.0800. Fiber ended last week’s session around the mid-point of this range at 1.0500, as dollar traders remained torn between inflation fears and demand for safety.

Last week, the US Federal Reserve decided to raise its interest rates by 75 basis points (bps), its highest single rate hike since 1994, in line with broader expectations. Powell noted that the next rate hike would be between 50 bps and 75 bps, eliminating the possibility of a 100 bps hike.

In Europe, the European Central Bank (ECB) held an emergency meeting following a sell-off in euro bonds. Policymakers explained: “The pandemic has left lasting vulnerabilities in the euro area economy which are indeed contributing to the uneven transmission of the normalization of our monetary policy across jurisdictions.” They added that the bank would flexibly reinvest redemptions from the ECB’s emergency bond-purchasing program, further explaining that it would design a new “anti-fragmentation instrument” to forestall potential debt crises among EU member nations.

EUR Remains Incapable of Launching Offensive Against Greenback

The ECB announced in a previous meeting that it would raise its lending rates by 35 bps in July, its first upward rate review in over ten years. Analysts explained that the ECB’s prolonged delay in raising rates put it behind other central banks, leaving the euro incapable of capitalizing on the proposed July hike, despite a weaker dollar.

Europe’s situation becomes even more precarious with the ongoing Russia-Ukraine war. The 4-month-long war resulted in oil and energy shortages and supply breaks, which tapered the continent’s economic recovery.

Next week, market attention will focus on global inflation and economic growth. Also, next week’s economic calendar holds some market-moving data releases.