Title: EUR/USD surrenders 1.0000 as DXY advances ahead of Fed policy

September 19, 2022 12:55 AM ET

By: AnalysisWatch

The euro-dollar pair slipped below the magic 1.0000 figure as the U.S. dollar index (DXY) advanced amid soaring bets on a Federal Reserve (Fed) rate hike. The asset fell sharply after failing to surpass Friday's high of 1.0036. The major is expected to be on edge in the near future.

DXY investors ignored downgraded growth forecasts for the U.S. economy cited by Goldman Sachs economists. According to the forecast, the U.S. economy will grow at an annual rate of 1.1% in 2023, down from a previously expected annual rate of 1.5%. The investment firm cut growth targets due to further monetary policy tightening, which will significantly reduce liquidity in the economy.

At the same time, the market's risk profile worsened after U.S. President Joe Biden said the U.S. military would defend Taiwan in the event of a Chinese invasion.

It is very likely that the Fed will announce a third consecutive rate hike of 75 basis points (bps). The magnitude of the hike could be even greater in the context of a vulnerable inflation rate to the current pace of rate hikes.

On the eurozone front, the common currency weakened as European Central Bank (ECB) policymakers painted a bleak picture of growth. Philip Lane, the ECB's chief economist, said on Saturday, according to Reuters. "At 0.75 percent, the ECB deposit rate is still too low while it continues to stimulate the economy, so the ECB's job is not yet done." He also said that higher interest rates will only accelerate consumer pain and further squeeze demand.