Euro hit by rate hike expectations

Published on 14.06.2021 10:14

There is little movement expected in the Euro/USD currency pair until Wednesday as the market awaits for guidance on US monetary policy by the rate setting Federal Open Market Committee. Traders ditched the Euro on Friday, pushing it down to its lowest level in over a month, as expectations grew that the Fed may start laying the groundwork for an interest rate hike later in the year to reign in inflation, after last weeks better than expected CPI numbers which seem to have caused a selloff towards the close of trade on Friday.

Many in the market were also disappointed with the ECB’s latest monetary statement after last week’s interest rate decision, that they have no plan to reduce their monetary stimulus programs which includes an extended period of negative interest rates and is bound to weigh on the European currency in the months ahead.

Although many in the market see the high inflation figures in the US as a temporary effect related to the coronavirus, there is still a much better chance that rates in the US will move higher before they do in Europe, which until clarified, may see the European currency remain under pressure against its US counterpart.

As mentioned above, all eyes will be on the Fed’s monetary policy meeting on Wednesday and as traders place their bets and we may see the Euro pull back even further to the $1.2072 mark reached in the middle of May.

A substantial bounce off this level is likely if the Fed keep to their current stance of keeping interest rates lower for longer to see how the US economy pans out.