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Title : EUR/USD recovery needs validation from German Inflation, Fed comments

November 29, 2022 12:40 AM ET


EUR/USD rises half a percent as buyers approach the 1.0400 threshold at the start of Tuesday's European session. Thus, the main currency pair records the first daily gains in three days ahead of the main German inflation indicator, namely the Harmonized Index of Consumer Prices (HICP) for November, as well as the US Confederation Board (CB) Consumer Confidence for the said month.

On the other hand, European Central Bank (ECB) President Christine Lagarde said on Monday that the economy will weaken for the rest of the year and early 2023. Lagarde added that interest rates will remain its main tool to fight inflation. Along the same lines were comments from ECB policymakers and Slovak Central Bank President Peter Kazimir, who said, "The risk of recession in the eurozone is growing." Further, ECB Governing Council member Klaas Knot said, "A recession is not a foregone conclusion." ECB policymaker Pablo Hernandez de Cos also pointed out that the rate hikes so far have not been enough to bring inflation back to its target.

St. Louis Fed President James "Jim" Bullard also stated that the situation calls for much higher interest rates than we have been used to. New York Fed President John Williams stated that he believed the Fed needed to raise interest rates to a level restrictive enough to dampen inflation and hold them at that level for all of next year. In addition, Fed Vice Chair Lael Brainard advocated tighter monetary policy, citing risk management reasons.

The first German HICP results for November, expected at 11.3% versus 11.6%, could challenge EUR/USD buyers if they show a weaker result, which is less likely. However, an expected deterioration in the U.S. consumer sentiment barometer could help the pair's buyers stay hopeful ahead of Wednesday's Eurozone HICP and a speech by Fed Chairman Jerome Powell.

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