EUR/USD Taps 10-Month High Following US Fed Monetary Decision

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Following the US Federal Reserve’s (Fed) announcement of its monetary policy decision last Wednesday, the EUR/USD pair increased to its highest level since late April last Thursday, touching 1.1034. Prior to the European Central Bank’s (ECB) decision early on Thursday, financial markets had no time to recuperate, which ultimately caused the euro to decline.

EUR/USD Stumbles on Friday

Finally, the United States released its January nonfarm payrolls report on Friday, which caused the EUR/USD to end the week at roughly 1.0800.

The primary interest rate was increased by the US Fed by 25 basis points (bps), indicating that the “ongoing” rate of rate increases appears to be sufficient. As stated in the Federal Open Market Committee (FOMC) statement, “inflation has eased somewhat but remains elevated,” indicating that policymakers recognized a decrease in price pressures.

The American central bank did not indicate that the cycle of tightening was about to cease, though. Chairman Jerome Powell added that although recent developments were encouraging, “the job is not fully done” and that they would need “substantially more evidence to be confident that inflation is on a sustained downward path.” Chair Powell finally acknowledged that the disinflationary process had begun during the press conference.

The US dollar oscillated between gains and losses before collapsing in response to Powell’s upbeat remarks, indicating an impending break in monetary tightening.

The ECB met expectations by increasing its benchmark rates by 50 basis points apiece. In response to market rumors, the central bank declared it would also increase interest rates by 50 basis points in March.

However, President Christine Lagarde said that more decisions would be based on evidence and would be made at each meeting. Though President Lagarde denied it, stating that there is still “ground to cover,” financial markets interpreted it as a sign that the tightening cycle is nearing its end.