Title : Euro Edges Lower Against Dollar Ahead of Key Fed Decision

Jul 25, 2022 04:07AM ET

By:AnalysisWatch

The euro declined against the dollar on Monday as investors weighed the possible magnitude of the interest rate hike that the Federal Reserve is expected to carry out this week.

On Wednesday, the U.S. central bank is expected to raise interest rates by at least 75 basis points as inflation remains elevated. The FOMC statement and accompanying press conference by Fed Chairman Jerome Powell will also be closely watched as the market tries to gauge the likelihood of this aggressive tightening plunging the world's largest economy and main engine of global growth into recession.

On Sunday, U.S. Treasury Secretary Janet Yellen admitted that growth in the world's largest economy is slowing. She also acknowledged the risk of a recession, but said this slowdown was not inevitable.

Concerns about the health of the U.S. economy have dampened expectations of an upcoming Fed tightening, as traders fear that aggressive rate hikes aimed at cooling red-hot inflation could lead to a pullback in growth. These fears have helped support the dollar, which investors view as a relatively safe haven.

The U.S. dollar index, which measures the greenback against a basket of currencies, was hovering close to the waterline on Monday at 106.495, a level just below the two-decade high of 109.290 reached in mid-July.

Meanwhile, traders remain cautious about the euro, as Europe's future growth depends largely on the uncertainty of Russian gas supplies. Predictions that the European Central Bank will carry out a series of large rate hikes have also diminished after its president, Christine Lagarde, suggested last week that there was no risk of recession this year, despite rising inflation and supply chain disruptions.

Sterling was down very little against the dollar, down 0.07% to $1.1995 pending the Bank of England's latest interest rate decision next week.