EUR/USD Heads Towards New Lows of 1.0500 Due to Bad Mood, and Disparity Worries Between Fed and ECB

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Azeez Mustapha

Updated: 13 October 2022

EUR/USD has resumed its downward trend after it failed to reverse trend on Friday, as the talks of avoiding risk also contributed to the disparity in ECB’s (European Central Bank) and Fed (Federal Reserve) monetary policy.

The President of the Federal Reserve Jerome Powell didn’t agree with the initiative of a 75bps interest rate increase, as worries of inflation burdening the growth of the economy. Lively development surrounding the US job report for last month came in 3 days ago, which implies that the Fed will maintain their hawkish position.

The unemployment rate stays the same at 3.6 percent, while the US Non-farm payroll released a 428,000 which exceeds the predicted 391,000.

It is important to keep in mind that James Bullard (President of the Fed bank of Saint Louis) repeated his bullish basis, which dragged the Federal Reserve towards the 3.5 percent rate.

EUR/USD Heads Towards New Lows of 1.0500 Due to Bad Mood, and Disparity Worries Between Fed and ECB

Other Factors Driving the EUR/USD and Anticipations for the Day

On the contrary, an European Central Bank member 3 days ago said ” The European Central Bank must not allow high inflation to be firmly established in the anticipations of people” as disclosed by Reuters. Before him, Joachim Nagal a German Central Bank executive said that the opportunity for ECB to come up with a monetary policy is gradually slipping away. Nevertheless, Francisco Villeroy de Gala said that ” It is logical to increase interest, rates towards the positive region by the end of this year”.

Therefore, the policy as it relates to both EUR and USD are struggling with each other, but the European economy isn’t as powerful as that of the US, which consequently gives the Federal Reserve the advantage of speedy rate increases. This has also supported the US Treasury yield, making it reach new highs which haven’t been reached since 2018, increasing by 2 bps to 3.15 percent as at the time of writing. The same has also propelled the DXY (dollar index) to 20 year high of 104 at the present.

Worsening coronavirus cases in China – which has forced the country to impose a lock-down, combined with the war between Russia and Ukraine – which has increased world pressure on Russia as fighting intensifies in the Eastern region of Ukraine, are also affecting the mood.

Going forward, since there are few economic happenings today, this may cause the EUR/USD to range. Nevertheless, US CPI (Consumer Price Index) and Christine Largade’s speech which are both due by Wednesday, will be important for short-term bearing.

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