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Title: EUR/USD declines to near 0.9880, ECB policy and Fed Powell’s speech eyed

September 7, 2022 12:04 AM ET

By: AnalysisWatch

The EUR/USD pair fell to near 0.9880 as the U.S. Dollar Index (DXY) rallied again. The asset extended losses during the Asian session after giving up the 0.9900 round support level. Given the general backdrop, the asset is expected to make new lows in a short time.

The DXY recorded a new two-decade high at 110.65 during the Asian session. The asset posted a stunning recovery after the release of upbeat U.S. ISM Services PMI data on Tuesday. The ISM non-manufacturing data came in at 56.9, which was above estimates and the previous release of 55.1 and 56.7, respectively.

The surprising improvement in the services PMI strengthened the powerful U.S. Dollar Index (DXY).

Looking ahead, U.S. Federal Reserve (Fed) Chairman Jerome Powell's speech will take center stage. Despite signals of exhaustion, price pressures in the U.S. economy are moving significantly away from the desired 2% rate. Powell will indeed be a hawk and will most likely talk about a third consecutive 75 basis point (bp) rate hike.

On the Eurozone front, investors are awaiting the announcement of the European Central Bank's (ECB) interest rate decision. The consensus is that ECB President Christine Lagarde will announce a 50 basis point (bp) rate hike. The ECB is required to take informed action on restrictive monetary policies due to regional imbalances.

In addition, soaring energy prices are a major concern for the trading bloc. Russia has cut off gas supplies to Europe through the Nord Stream 1 pipeline in response to Western sanctions imposed on Russia. The eurozone's energy crisis is getting worse as the winter season is fast approaching and will require more energy.

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