Euro Rate Surges to Monthly Highs Amid ECB Decision

The EUR/USD currency pair experienced a notable surge, surpassing the 1.0800 level and reaching 1.0863, marking its highest point in nearly a month. However, the pair retraced slightly from this peak. The short-term trend suggests an upward trajectory, with market attention turning to the upcoming European Central Bank (ECB) monetary policy decision at 12:15 GMT.

Analysts believe that the market has already factored in a 25 basis point hike in the ECB’s interest rates. As the focus shifts toward the central bank’s language and forwards guidance, investors anticipate ECB President Christine Lagarde’s remarks at 12:45 GMT, where she may reiterate that rate hikes are not yet complete. Despite the anticipated rate hike, experts suggest that it may have a limited impact on the Euro rate.

EUR/USD Faces Moderate Downside Risks, ING Analysts Warn

ING economists analyze the potential impact of the ECB’s policy announcement on the EUR/USD pair. They caution that there are moderate downside risks for the currency pair, which could lead to a drop back to the 1.0750 support level. While the short-term outlook may indicate some downward pressure, the overall trend remains bullish.

Euro Area Industrial Production figures exceeded expectations, contributing to the EUR/USD’s gains. Concurrently, the U.S. Dollar Index weakened ahead of the Federal Reserve’s decision, influenced by a decline in Producer Prices Index (PPI) by 0.3% month-over-month in May. However, market dynamics may shift depending on the Fed’s comments and projections.

Volatility in EUR/USD Following Hawkish Hold from the Fed

The EUR/USD pair experienced volatility in response to the Federal Reserve’s interest rate decision and projections. The initial reaction saw a downward jolt as the market priced in more rate hikes in the future. Even though the Fed maintains its current stance. As market participants digest the forecasts and statements, all eyes are on Fed Chairman Jerome Powell’s press conference, which is expected to provide further insights.

From a technical standpoint, the Dollar to Euro rate has breached previous resistance levels and is now poised to test the next resistance area above 1.0900. Analysts note the possibility of overshooting spreads in the short term, but the overall trend remains higher for the Euro. Traders are eyeing levels around 1.0900, while a return to 1.10+ is also within sight.

USD Weakens Following Fed’s Hawkish Hold, Impacting EUR/USD Dynamics

The U.S. Dollar faces significant pressure following the Federal Reserve’s hawkish stance, signaling potential rate increases later this year. While bears eye trendline support, bulls continue to have a presence in the market, with a longer-term target around the 1.0900s. The outcome of the Fed decision has reshaped the market sentiment and expectations for future rate cuts in 2023.

Scotiabank economists analyze the outlook for the EUR/USD pair ahead of the ECB policy decision. They note that while short-term fluctuations may occur, the overall trend favors further upside potential for the Euro. The support around the 40-day moving average (1.0857) may serve as a springboard for the pair to test the lower 1.09 area, with a longer-term target of 1.10+ in focus.

Euro Area Growth Outlook and ECB’s Stance Crucial for EUR/USD

To sustain the Euro rate, the European Central Bank needs to adopt a firm tone. Besides, it would be beneficial to take action to avoid the currency’s momentum from fizzling out. However, the Euro’s trajectory towards the projected peak of 1.15 to 1.20 in late 2023 or early 2024 largely relies on an improvement in the European growth outlook. Positive signals from European data may have a more significant impact on the Euro’s prospects than the ECB’s hawkish tone.

The Dollar to Euro rate briefly reached its highest levels in June following indications of nearing US inflation targets. Potentially, that could relieve pressure on the Federal Reserve to implement further interest rate hikes. However, expectations for borrowing costs may disrupt the market, as the pair’s gains reached the resistance level of 1.0823 briefly before settling around 1.0788. The US dollar faced selling pressure after the moderation of inflation, although gains were short-lived.

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