- EUR/USD is grinding higher around an intraday high as it prepares for a second straight weekly gain.
- Although Fed officials are also syncing the tune with ECB hawks, hopes of a shorter recession in Europe favor the bulls.
- Weak US data renews economic concerns around the world’s largest economy and probes DXY bulls.
- ECB President Lagarde’s speech and the Fed’s pre-blackout meeting before the FOMC will be crucial for clear direction.
EUR/USD bulls are holding the reins around 1.0840 as they target a second straight weekly gain during Friday.
The major currency pair’s recent gains could be related to broad weakness in the US dollar as well as optimism around the old continent, namely eurozone. It’s worth noting, however, that Federal Reserve (Fed) officials appear to be questioning the upward momentum of late.
Although European Economic Commissioner Paolo Gentiloni said on Thursday: “We are in a period of economic decline”, European Central Bank (ECB) President Christine Lagarde he said the economic news is much more positive. The cautious optimism was bolstered by comments from the ECB’s Lagarde, who said: “We may see only a small contraction in the eurozone” and also: “We will continue on course with rate hikes”.
It should be noted that ECB policymaker Klaas Knot was too aggressive and stated that the ECB is planning multiple 50 bps hikes. The latest ECB Monetary Policy Meeting Accounts statement was in the same vein. “A large number of members initially expressed a preference to raise key ECB interest rates by 75 basis points,” ECB Accounts said the previous day.
On the other hand, Federal Reserve Bank New York President John Williams said the U.S. central bank was ahead of another rate hike and saw signs that inflationary pressures could be cooling from high levels. Fed Vice Chairman Lael Brainard said on Thursday that it will take time and determination to bring high inflation down to the Fed’s 2% target. The politician also added: “The policy will have to be sufficiently restrictive for some time.” Additionally, Boston Fed President Collins signaled that the baseline remains that the effective Fed funds rate should settle slightly above 5.0%, implying three more 25 basis point rate hikes.
However, it should be noted that the hawkish play by Fed policymakers has not received much credit amid the mixed data. That means US jobless claims fell to their lowest level since late April 2022, to 190,000 for the week ending January 13, compared with expectations of 214,000 and 205,000 previously. Further, the Philadelphia Fed Manufacturing Survey Index improved to -8.9 for January compared to -11.0 market forecasts and -13.7 previous readings. However, U.S. building permits fell to 1.33 million for the month in December versus the consensus of 1.37 million and to 1.351 million a year earlier, while Housing Starts also fell to 1.382 million during the month from 1.401 million in November versus the expected 1.359 million Previously weak US retail sales and Producer Price Index (PPI) raised fears of a recession in the world’s largest economy after data earlier flashed on softer wage growth and activity.
Elsewhere, slow moves in key US Treasury yields and modest gains in S&P 500 Futures are also putting downward pressure on demand for the US Dollar, driving EUR/USD prices.
Looking ahead, EUR/USD traders should pay attention to ECB President Lagarde’s speech and the last Fed policymakers’ speech before the Fed’s shutdown period, starting on Saturday. If ECB hawks weigh more heavily than their Fed counterparts, the major currency pair could end up resuming a one-month high.