September 8, 2022 01:13 AM ET
By: AnalysisWatch
The EUR/USD is trading in a narrow range of 0.9979-0.9994 during the Asian session. The asset has gone into a time correction phase after failing to hold above the magic 1.0000 figure. A lackluster performance is expected from the asset until the announcement of the interest rate decision by the European Central Bank (ECB).
With the ECB required to combat the twin threats of soaring prices and sluggish economic growth, the size of a rate hike will be crucial for the old continent. The ECB's preferred inflation indicator, the Harmonized Index of Consumer Prices (HICP), has risen to an impressive 9%. The reason for this is the rise in energy prices, which is increasing the energy bill and ultimately putting pressure on prices.
The outlook for growth in the eurozone is bleak due to supply chain bottlenecks, imbalances in regional development and the worsening energy crisis as the winter season approaches. As a result, an increase in rates could significantly reduce growth prospects.
Given the market consensus, ECB President Christine Lagarde will announce a rate hike of 75 basis points (bps). This will bring the interest rate to 1.25%.
Meanwhile, the U.S. Dollar Index (DXY) is trading in a balanced market profile, which will be destroyed after Fed Chairman Jerome Powell's speech. At the same time, Powell is expected to dictate likely monetary policy action this month, and the adjustment of a "hawkish" stance is highly anticipated as households still face the headwinds of rising wages and inflation-adjusted paychecks. The inflation rate must be reduced as soon as possible or consumer confidence will fall significantly.