Euro Exchange Rate News

Euro US Dollar (EUR/USD) Exchange Rate Falls as Bets on Aggressive Fed Rate Hike Increase

US Federal Reserve Bank

Euro US Dollar (EUR/USD) Exchange Rate Drops amid Euro Sell-Off

The Euro US Dollar (EUR/USD) exchange rate is steadily dropping lower today. Hawkish bets on Federal Reserve rate hikes as well as a risk-off market mood are likely pulling the exchange rate lower today. A continued sell-off of the Euro may also be causing the currency pair to fall.

At time of writing the EUR/USD exchange rate is at around €1.0442, which is down around -0.7% from this morning’s opening figures.

Euro (EUR) Slides despite Hawkish ECB Comments

The Euro (EUR) is falling against many of its rivals despite a risk-off market mood. The single currency is seeing a continued sell-off from more bullish investors. Traders were disappointed by a less hawkish than expected forward outlook from the European Central Bank (ECB). A downturn to German bond yields may also be limiting gains for EUR today, as well as a strong US Dollar (USD).

Speaking last week, ECB President Christine Lagarde announced that the central bank would be hiking rates by 0.25% in July. Investors had been hoping that Lagarde would reveal a more hawkish hike.

Additionally, dovish comments from Lagarde may have also harmed the Euro’s chances. The central bank’s president stated that the war in Ukraine would likely continue to ‘dampen growth, especially in the near term’.

Significant gains for the Euro could be limited by hawkish comments from other ECB policymakers, however. Speaking today, ECB board member Peter Kazimir said:

‘In the autumn, concretely in September, we will continue with raising rates and here I clearly see the need to accelerate the pace and deliver an increase by 0.50%.’

US Dollar (USD) Bolstered by Possibility of Significant Fed Rate Hike

The US Dollar (USD) is climbing against the majority of its competitors today. Hawkish bets ahead of this week’s interest rate meeting from the Fed may well be bolstering USD. The safe-haven ‘Greenback’ is also benefitting from a retreat to risk appetite.

Many investors and banks have ramped up their projections ahead of Friday’s meeting of the Fed. Hotter-than-expected inflation figures last week are the likely cause after annual inflation posted its largest gain since 1981. Several sources now forecast a 0.75% rate hike.

BNY Mellon Strategist John Velis said:

‘The May inflation data was so concerning that we think the Fed will react even more aggressively in moving rates ‘expeditiously’.

Fears of a global economic slowdown are also likely increasing bets on the US Dollar today. Just weeks after Covid-19 restrictions were lifted in Shanghai, Chinese authorities have ramped up mass-testing efforts in Beijing.

EUR/USD Exchange Rate Forecast: Will Fed Commit to Largest Hike since 1994?

Looking to the week ahead for the Euro (EUR), Germany’s May inflation figures could push EUR higher on Tuesday if they rise as forecast at their final reading. The figures could see further rate hike bets on the currency, especially if Eurozone inflation climbs as expected on Friday.

A drop to Eurozone and German economic sentiment on Tuesday could limit any significant gains, however.

For the US Dollar (USD), investors will be most keenly awaiting the Fed’s interest rate decision on Thursday. With some markets pricing in a bumper 0.75% rate hike, the decision could see the currency leap higher. Ahead of this, a drop to retail sales on Wednesday could see increased bets on a Fed rate hike in order to curb soaring inflation.

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