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Mar 07 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Firms As Powell Out-Doves ECB

By Paul Spirgel  —  Mar 07 - 01:45 PM

The USD index continued its descent on Thursday, falling 0.38% by U.S. afternoon trade following a slightly more dovish tone by Fed Chair Jerome Powell in his second day of congressional testimony.

Currency traders were offering the dollar after Powell emphasized his expectations that the Fed will cut rates in 2024 -- saying the U.S. central bank is "not far" from getting enough confidence that inflation is heading to its 2% goal-- with LSEG’s IRPR now pricing a June cut at 94%.

The dovish Fed tilt is playing out further out the calendar as short-term interest rate futures are now pricing 92bp of Fed cuts by the Dec.
18 FOMC meeting, dialing back less dovish sentiment that lifted the USD in February.

EUR/USD rallied 0.34% to 1.0934, a touch below the session high at 1.0942, after the ECB held rates steady and President Christine Lagarde said they were making good progress towards their inflation target and that policymakers are more confident as a result, though not quite not sufficiently confident.

The less dovish ECB comments momentarily boosted the EUR, but Euribor futures are pricing a June cut for the ECB, matching the Fed, which should temper further EUR/USD gains, with the 2024 high at 1.1046 likely capping.

USD/JPY fell 0.87% to 148.09 in NorAm afternoon trade, the pair rose off early NorAm lows by 147.59.
The yen gained on a combination of dovish Fed rate expectations and short yen position squaring ahead of the upcoming BoJ meeting on Mar 19.

Traders are wary of a BoJ pivot to higher rates in March or April, thinking if the BoJ is to hike rates it will likely come before the Fed begins cutting rates.
Support is bruised but holding at the 100-DMA by 147.66, below the 100-DMA the 55-DMA at 147.30 and Feb.
1 low at 145.90 attract.

GBP/USD rose to a new 2024 high at 1.2798, with the pound broadly firm amid dovish ECB and Fed rate expectations.
With UK inflation metrics well above the BoE’s 2% target UK rate expectations remain higher than the Fed and ECB and are likely to stay high for longer, propping up the pound.

GBP/USD is finding resistance near 1.28 ahead of the Dec.
28 high by 1.2825.
UK CPI on March 20 and the BoE rate announcement on March 21 may temper recent bullish expectations as the MPC is likely to maintain a steady tack on rates allowing recent inflation progress to further develop.

Bitcoin’s rebound from March 5 lows just below $60k continued.
BTC rallied 1.7% to $67.6k as ETF flows and lower rates supported cryptos broadly.
Gold rallied 0.46% to a new all-time high at $2,164.09 before falling back to $2,158 in NorAm afternoon trade, the lower Fed rate expectations aiding gold’s ascent to new highs.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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