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Euro US Dollar (EUR/USD) Exchange Rate Slides as Fed Signals Further Rate Hikes on the Horizon

Euro and US Dollar banknotes

Euro US Dollar (EUR/USD) Exchange Rate Slips amid EUR Profit Taking

The Euro US Dollar (EUR/USD) exchange rate is seeing volatile shifts today. The pair rose earlier to a 6-month high.

Following the European Central Bank’s (ECB) interest rate decision however, the currency pair may be struggling amid some profit taking. Safe-haven flows amid a risk-off market mood could also be weighing on EUR/USD today.

At time of writing the EUR/USD exchange rate is at around $1.0642, which is down roughly 0.3% from this morning’s opening figures.

US Dollar (USD) Gains as Fed Signals Further Rate Hikes to Come

The US Dollar (USD) is climbing today. A retreat in global risk appetite is likely bolstering the safe-haven ‘Greenback’.

The Fed’s interest rate decision may also be pushing the currency higher today. The central bank hiked rates by 50bps on Wednesday in a bid to combat soaring inflation.

Fed Chair Jerome Powell’s hawkish remarks following the decision could be a primary catalyst for USD’s gains today.

Powell confirmed that the Fed would be moving to smaller rate hikes but declined to give an end date for the Fed’s policy tightening.

Speaking on Wednesday, Powell said:

‘The inflation data received so far in October and November show a welcome reduction in the pace of price increases, but it will take substantially more evidence to give confidence inflation is on a sustained downward path.’

Euro (EUR) Bolstered by Hawkish ECB Forward Guidance, Slips Against USD Amid Risk-Off Mood

The Euro (EUR) is rising against most of its peers today after the European Central Bank’s interest rate decision. A cautious market mood could also be boosting the single currency. Risk-off flows to the US Dollar could be seeing EUR fall against its safer rival, however.

Alongside a 50bps rate hike, ECB President Christine Lagarde gave some particularly hawkish comments that could be also adding to EUR’s gains.

Lagarde signalled that the central bank was ‘not pivoting’ and that interest rates would still have to rise ‘significantly and at a steady pace’.

Antoine Bouvet, senior rates strategist at ING, said:

‘Lagarde clearly guided the market to anticipate more 50 basis point hikes, in February and in March, and pushed back against the notion that it will be able to cut rates any time soon.’

EUR/USD Exchange Rate Forecast: Will Poor Eurozone PMIs Weigh on EUR?</2h>

Looking to the rest of the week for the Euro, December’s PMIs for Germany and the Eurozone on Friday could weigh on the single currency if they print as forecast. The latest data is expected to indicate a contraction across all private sectors.

Also on Friday, the final reading of November’s inflation for the Eurozone could pull EUR lower. Inflation in the trading bloc is expected to have cooled last month which could add to expectations of a rate hike slowdown from the ECB.

Finally for EUR, Friday’s trade data could see further losses in the single currency if it prints as forecast. The Eurozone’s trade deficit is expected to have widened to €-41.2bn in October.

For the US Dollar, December’s PMI data may prompt losses in the currency if the figures print as forecast. The country’s private sectors are expected to continue their contraction amid high inflation and reduced household spending.